BofA Finance Issues $1.62 Billion Buffered Auto-Callable Notes Linked to Three Major Equity Indices

Structured Payoff Mechanism Tied to Least Performing Index

The notes deliver differentiated returns based on the performance of the three underlying indices measured against their starting values established on the pricing date. If the notes remain uncalled through maturity and all three indices finish at or above their July 21, 2026 closing levels, investors receive $1,303 per $1,000 principal amount, representing a 30.3 percent return over the three-year period. This enhanced coupon-like return structure provides upside participation without periodic interest payments during the holding period.

The redemption mechanism focuses on the "Least Performing Underlying," meaning whichever of the three indices shows the weakest performance relative to its starting value. The starting values established on July 21, 2026 are: Dow Jones Industrial Average at 52,224.64, Nasdaq-100 Index at 29,155.18, and Russell 2000 Index at 2,987.395. This design exposes investors to the downside risk of the worst-performing index while providing buffering against smaller losses.

Downside Buffer and Principal-at-Risk Scenarios

The notes incorporate a 30 percent decline buffer, meaning investors do not suffer losses unless the least performing index falls more than 30 percent from its starting value. If the weakest-performing index declines between zero and 30 percent, investors receive their full $1,000 principal amount at maturity, even if the index performance is negative. This structure appeals to investors seeking equity market exposure with built-in downside cushioning against moderate market declines.

However, if any of the three underlying indices declines more than 30 percent from its starting value, investors face 1-to-1 downside exposure to losses beyond that 30 percent threshold, with up to 70 percent of the principal amount at risk. For example, if the Nasdaq-100 Index, serving as the least performing underlying, falls to 20,408.63 (which represents 70 percent of its starting value of 29,155.18), an investor would lose approximately 30 percent of their initial investment. Steeper declines would result in proportionally greater losses up to the stated maximum of 70 percent principal loss.

Automatic Call Feature and Early Redemption Mechanics

Beginning on July 22, 2027, the notes become automatically callable on any anniversary date if the closing levels of all three underlying indices equal or exceed their starting values on that Call Observation Date. This annual call structure gives BofA Finance and Bank of America the right to redeem the notes early if market conditions prove favorable, effectively capping investors' upside participation at the specified call amounts. The automatic call feature begins approximately one year after issuance and continues through maturity on four scheduled observation dates.

If the notes are called, investors receive the applicable Call Amount specified for that observation date and no further payments are made. The call feature protects BofA Finance from extended exposure to rising equity indices but limits investor returns in strongly performing markets. Investors must understand that early redemption is not optional—if call conditions are met, redemption occurs automatically, terminating the investment regardless of investor preference or market outlook.

Credit Risk Exposure and Bank of America Guarantee

The notes are issued by BofA Finance LLC, a special-purpose finance subsidiary, with an unconditional guarantee from Bank of America Corporation. This guarantee structure means that payment obligations flow from both the issuer and the guarantor, creating a dual recourse mechanism for noteholders. However, the notes are explicitly not FDIC-insured and not bank-guaranteed in the traditional deposit sense, exposing investors to the full credit risk of Bank of America Corporation despite the legal guarantee structure.

The filing emphasizes that any payment on the notes depends on the creditworthiness of both entities, with Bank of America's senior debt rating serving as the primary credit baseline. While Bank of America maintains investment-grade credit ratings, investors face counterparty risk throughout the three-year term. The guarantee does not protect against market risk associated with the underlying indices or against the structured note features themselves—it only protects against issuer default on payment obligations.

Pricing, Distribution, and Underwriting Economics

BofA Securities, Inc., an affiliate of BofA Finance, serves as both the selling agent and calculation agent for the notes. The public offering price is $1,000 per note, with an underwriting discount of $28.50 per note, generating $40,500 in total underwriting compensation on the $1.62 billion offering. The proceeds to BofA Finance before expenses total $1,579,500,000 after deducting the underwriting discount. The initial estimated value of $966.80 per note as of the pricing date is notably lower than the $1,000 public offering price, indicating the market assessment of the notes' intrinsic worth versus their distribution price.

The offering structure permits certain dealers to forgo some or all of their selling concessions for fee-based advisory accounts, potentially offering investors a lower effective price of $971.50 per note. Additionally, an affiliate of BofA Finance may pay a referral fee of up to $3.50 per $1,000 principal amount to other registered broker-dealers, adding to the total embedded costs within the offering. These distribution economics demonstrate that the $1,000 public offering price includes substantial embedded compensation to BofA entities and affiliated dealers.

Index Composition and Valuation Mechanics

The three underlying indices represent distinct segments of the U.S. equity market: the Dow Jones Industrial Average tracks 30 large-cap blue-chip companies, the Nasdaq-100 Index captures 100 large-cap technology and growth-oriented stocks, and the Russell 2000 Index measures approximately 2,000 small-cap and mid-cap companies. The notes use price return indices rather than total return indices, meaning dividends paid by constituent stocks do not factor into performance calculations, potentially disadvantaging noteholders compared to total return benchmarks.

Each index's starting value, call value, redemption barrier, and threshold value are fixed on July 21, 2026. The threshold value for each index is set at exactly 70 percent of its starting value, establishing the floor below which principal losses accelerate. The valuation date—July 23, 2029—is the measurement date for the final ending values that determine the redemption amount at maturity, subject to potential postponement due to market disruptions or other specified events described in the accompanying product supplement.

Risk Factors Specific to Structured Note Ownership

The notes differ materially from conventional debt securities, lacking periodic coupon payments and containing embedded optionality favoring the issuer through the automatic call feature. Investors face the risk that gains may be capped if market conditions trigger early redemption before favorable market movements can accrue full value. Additionally, the notes are not listed on any securities exchange, meaning investors cannot easily sell positions in secondary markets and face illiquidity risk if they need to exit before maturity.

The concentration of payoff on a single valuation date creates point-in-time risk, where investors' final returns depend entirely on index levels on July 23, 2029, regardless of interim performance. Market manipulation, index methodology changes, or index component changes could impact returns in ways that affect one index more severely than others. The CUSIP number 09712GH98 identifies these specific notes for trading and settlement purposes, but the lack of exchange listing significantly constrains trading opportunities compared to publicly traded securities.

Comparison to Direct Index and Alternative Investment Strategies

Investors considering these notes should evaluate them against direct index investment through exchange-traded funds, mutual funds, or other traditional vehicles offering exposure to the Dow Jones Industrial Average, Nasdaq-100, and Russell 2000 indices. Direct index ownership provides full participation in index returns, daily liquidity, transparent pricing, and elimination of issuer credit risk. The structured note approach trades liquidity, simplicity, and full participation for potentially higher returns in range-bound or modestly rising markets, coupled with built-in downside protection.

The 30.3 percent total return on the upside scenario must be weighed against the loss of dividend income (through price-return-only measurement), embedded distribution costs of approximately $28.50 to $31.50 per $1,000 principal, and the three-year illiquidity commitment. The automatic call feature caps upside and introduces reinvestment risk if notes are called early in a strong market, forcing investors to redeploy proceeds at potentially lower valuations. Conservative investors should carefully assess whether the structured returns justify the complexity and risk profile relative to simpler direct equity exposure.

Market Context and Offering Timing

The notes were priced on July 21, 2026, and issued on July 24, 2026, during a period when U.S. equity indices were trading near the starting values specified in the offering. The Dow Jones Industrial Average closing at 52,224.64, the Nasdaq-100 at 29,155.18, and the Russell 2000 at 2,987.395 on the pricing date suggest a relatively balanced market environment without extreme valuation extremes. The structured nature of the offering, with its automatic call features and buffered downside, suggests BofA Finance assessed the probability of volatile market movements and positioned the terms accordingly.

The approximate three-year term aligns with medium-term investment horizons and provides exposure through potential market cycles. However, the specific index levels on July 21, 2026, constitute the immovable reference points for all payoff calculations, meaning future investors cannot adjust or reset these starting values regardless of subsequent market movements or their entry price into the secondary market. Early purchasers buying at par ($1,000) effectively paid a $33.20 premium over the estimated intrinsic value, whereas secondary market purchasers could potentially acquire the notes at different effective valuations depending on price discovery in any available trading venues.