BofA Finance Launches Contingent Income Callable Yield Notes Linked to Russell 2000 and S&P 500 Indices

Structured Product Architecture and Dual Index Linkage

The Contingent Income Issuer Callable Yield Notes represent a complex equity-linked structured product that ties investor returns to the combined performance of two major U.S. equity indices. The notes are linked to the Russell 2000 Index, representing small-cap equities, and the S&P 500 Index, representing large-cap equities. BofA Finance structured the offering such that coupon payments and final redemption amounts depend on the behavior of whichever index performs worse—the so-called "least performing underlying." This dual-index approach creates exposure to both segments of the U.S. equity market but introduces compounding risk, as weakness in either index can trigger loss-of-coupon conditions or principal impairment.

The notes specify that coupon observations occur on quarterly observation dates beginning November 2, 2026, with corresponding contingent payment dates typically occurring three business days later. Each underlying index is evaluated independently, and the coupon payment condition requires both indices to trade at or above 55% of their respective starting values—measured on the pricing date of July 31, 2026. This dual-barrier design means that if either the Russell 2000 or the S&P 500 falls below that 55% threshold on any quarterly observation date, no coupon is paid for that quarter, even if the other index remains stronger.

Coupon Mechanics and Quarterly Payment Structure

The notes offer a contingent coupon rate of 8.00% per annum, distributed in equal quarterly installments of 2.00% per quarter, or $20.00 per $1,000 in principal amount. Coupon payments are contingent—meaning they are not guaranteed but depend on both underlying indices remaining above their coupon barriers on the relevant observation dates. The coupon barrier is set at 55% of the starting value for each underlying, calculated on the pricing date. Should either index decline below this threshold on a quarterly observation date, no coupon payment is made for that period. The contingent coupon structure is a core feature distinguishing these notes from conventional fixed-income securities; investors receive a higher stated yield in exchange for accepting the risk that coupons may be suspended if market conditions deteriorate.

Observation dates are scheduled quarterly throughout the note term, with the first observation date occurring November 2, 2026, and continuing through the final valuation date of July 31, 2031. The disclosure states that contingent payment dates follow observation dates by three to five business days, allowing the calculation agent time to determine index levels and compute coupon eligibility. The issuer, BofA Finance, retains the right to call the notes quarterly beginning February 4, 2027, which would terminate further coupon payments and return principal plus any applicable contingent coupon due on the call date, thereby limiting investors' upside if equity markets rally significantly.

Principal-at-Risk Feature and Downside Exposure Thresholds

A defining characteristic of these notes is the embedded principal-at-risk feature that activates if either underlying index declines more than 45% from its starting value by maturity. The disclosure describes this as providing "1:1 downside exposure to decreases in the value of the Least Performing Underlying, with up to 100% of the principal at risk." This means that if the Russell 2000 or S&P 500 falls below 55% of its starting level and either declines more than 45% from inception, the redemption amount paid at maturity will reflect those declines dollar-for-dollar, potentially resulting in substantial losses. Unlike traditional principal-protected notes, these notes do not guarantee return of the full investment amount if equity markets experience a significant downturn.

The threshold value for principal protection purposes is set at 55% of the starting value for the least performing index. If the least performing underlying closes at or above that threshold on the final valuation date (July 31, 2031), investors receive their full $1,000 per note principal amount at maturity, plus any final contingent coupon if both indices are above their coupon barriers on that date. Conversely, if the least performing underlying ends below the 55% threshold, the redemption amount declines proportionally with the index, and investors could lose substantially more than anticipated. The disclosure explicitly states that losses could exceed 45% of principal, representing a material risk consideration for prospective buyers.

Issuer Guarantee and Credit Risk Considerations

The notes are issued by BofA Finance LLC and are fully and unconditionally guaranteed by Bank of America Corporation. This guarantee structure means that all payments—including contingent coupons and the redemption amount—are backed by Bank of America's creditworthiness. However, the disclosure emphasizes that all payments remain subject to the credit risk of both BofA Finance as the primary issuer and BAC as the guarantor. Should either entity experience financial stress or default, note holders would become unsecured creditors in a bankruptcy proceeding, and recovery would depend on the entity's available assets after higher-priority claims are satisfied. The guarantee does not eliminate counterparty risk; it simply extends the obligation to the guarantor in the event the issuer cannot pay.

Investors should note that these notes are not FDIC-insured and are not bank-guaranteed in the traditional sense, despite the involvement of a major financial institution. The disclosure clearly states these facts in conspicuous terms. Bank of America Corporation's size and market position provide substantial credit support, but concentration of risk with a single issuer and guarantor remains a consideration, particularly for investors holding large positions or those concerned about systemic banking sector stress.

Pricing, Valuation, and Secondary Market Considerations

The public offering price for the notes is set at $1,000.00 per note, with no underwriting discount charged to BofA Finance. The initial estimated value of the notes as of the pricing date is expected to range between $939.90 and $989.90 per $1,000 in principal amount, indicating that the structural components—the contingent coupon, the call feature, the downside exposure, and the credit risk—are valued at a discount to the offering price. This valuation gap is material and reflects the complexity and risks embedded in the product. The disclosure warns investors that "the actual value of your Notes at any time will reflect many factors and cannot be predicted with accuracy," highlighting the difficulty in assessing fair value for equity-linked structured products outside of the issuance window.

The notes will not be listed on any securities exchange, limiting liquidity and secondary market trading opportunities. Investors seeking to exit prior to maturity would need to arrange off-exchange transactions, potentially at unfavorable pricing. BofA Securities, Inc., an affiliate of the issuer, serves as both the calculation agent and the selling agent for the offering. The use of an affiliate as the calculation agent—responsible for determining observation values, barrier breaches, and coupon eligibility—creates a potential conflict of interest, as the calculation agent is part of the issuing organization. Investors should understand that no independent third party calculates note parameters or resolves disputes over calculation methodology.

Optional Call Feature and Early Redemption Rights

Beginning February 4, 2027, and continuing on each subsequent quarterly call payment date, BofA Finance has the right, but not the obligation, to call all outstanding notes at the early redemption amount. The early redemption amount equals $1,000 per note in principal, plus any applicable contingent coupon payment if both underlyings are above their coupon barriers on the corresponding observation date. This call feature provides the issuer with an asymmetric benefit: if equity markets rally and both indices remain strong, pushing the implicit value of the notes above $1,000, the issuer can redeem at that fixed price, capturing any excess value. Conversely, if markets decline and the notes become worth less, the issuer is unlikely to redeem early, leaving investors with a depreciating security.

The call right effectively caps investors' upside participation while leaving downside exposure intact. An investor who purchases the notes at $1,000 and holds through several years of strong market performance may find that rising equity index levels increase the notes' value, but the issuer exercises the redemption right and returns only $1,000 plus accrued contingent coupons, capturing the incremental gains. The issuer must provide at least five business days' and no more than 60 calendar days' notice of any call decision, giving investors limited time to respond. This asymmetric payoff structure is a hallmark of callable structured products and works primarily in the issuer's economic interest.

Operational and Settlement Timeline

The notes are scheduled to price on July 31, 2026, and issue on August 5, 2026, with a maturity date of August 5, 2031. The approximately five-year term is subject to earlier redemption if the issuer exercises its call right on any quarterly call payment date. The first observation date is November 2, 2026, followed by regular quarterly observations on dates specified in the disclosure. The valuation date—July 31, 2031—determines the final ending values of the underlyings and triggers the calculation of the redemption amount due at maturity. The disclosure notes that valuation dates are subject to postponement if extraordinary events occur, though specific circumstances are described in the accompanying product supplement not fully reproduced in this pricing document.

The minimum denomination for the notes is $1,000, with whole multiples of $1,000 permitted thereafter. This structure limits retail accessibility, as most investment accounts require investment minimums, and the complexity of the product creates practical barriers to entry for unsophisticated investors. The CUSIP number is 09712CE58, enabling institutional investors and financial advisors to identify the notes in clearing systems and custody platforms. Settlement occurs on the issue date, August 5, 2026, and subsequent contingent payment dates follow observation dates by a few business days, allowing the calculation agent to determine coupon eligibility and notify paying agents.

Risk Factors and Material Considerations for Prospective Investors

The disclosure emphasizes that these notes carry important differences from conventional debt securities and that investors should carefully review the risk factors sections beginning on page PS-9 of the pricing supplement, page PS-3 of the accompanying product supplement, page S-7 of the prospectus supplement, and page 7 of the prospectus. The pricing document explicitly warns that investors could lose a substantial portion of their investment, that coupon payments are not guaranteed, and that the notes carry credit risk tied to the issuer and guarantor. The contingent coupon structure means that if either the Russell 2000 or S&P 500 experiences weakness, investors may receive no quarterly coupon despite purchasing the notes at a $1,000 premium price.

Additional risks highlighted in the disclosure include the potential impact of extraordinary market events on valuation dates and observation dates. If trading is disrupted or indices are adjusted due to corporate actions affecting the underlying companies, the calculation agent makes judgments about how to proceed, with limited recourse for investors who disagree with those determinations. Equity market volatility presents perhaps the most significant risk: should either index decline sharply in the early years of the note term, the notes could enter a state where coupons are suspended for an extended period, and principal is fully exposed to downside. Finally, the notes' lack of liquidity in the secondary market means investors cannot readily exit unfavorable positions without accepting potentially wide bid-ask spreads or negotiating directly with BofA Securities.

Regulatory Context and Distribution Framework

The notes are offered pursuant to a registration statement (Nos. 333-290665 and 333-290665-01) filed with the Securities and Exchange Commission under the Securities Act of 1933. The pricing supplement is filed as a 424(b)(2) prospectus supplement, indicating the notes are registered securities offered under an effective registration statement. The accompanying prospectus is dated December 8, 2025, with series and product supplements of the same date. Investors receive a comprehensive set of disclosure documents, including detailed risk factors, structuring commentary, and description of the note mechanics. The SEC disclaimer at the front of the pricing supplement notes that the Commission has neither approved nor disapproved the securities and that any representation to the contrary constitutes a criminal offense.

The distribution framework includes BofA Securities, Inc., as the selling agent, and provision for affiliate referral fees of up to $4.50 per $1,000 in principal amount payable to other registered broker-dealers who distribute the notes to their clients. This incentive structure may influence how broker-dealers market the product to retail investors, potentially creating conflicts between sales incentives and investor suitability. Investors purchasing through financial advisors should inquire whether their advisor receives compensation for recommending these notes and should understand the advisor's obligation to recommend only suitable investments aligned with the investor's financial objectives, risk tolerance, and investment horizon.