BofA Finance Issues Callable Yield Notes Linked to Three Major Stock Indices With Contingent Monthly Payments

Structure and Pricing of the Contingent Income Notes

The Contingent Income Issuer Callable Yield Notes represent a structured debt product issued by BofA Finance LLC with a full and unconditional guarantee from Bank of America Corporation. The notes are linked to the performance of three widely-tracked equity indices: the Nasdaq-100, Russell 2000, and S&P 500. According to the filing, the notes have a public offering price of $1,000.00 per note with an underwriting discount of $15.50 per note, resulting in proceeds to BofA Finance of $984.50 per $1,000 in principal amount before expenses. The initial estimated value of the notes as of the pricing date is expected to be between $920.00 and $970.00 per $1,000 in principal amount, which the filing notes is less than the public offering price.

The notes carry minimum denominations of $1,000 and multiples thereof, with a CUSIP number of 09712GAE4. The issuer has established BofA Securities, Inc. as both the calculation agent and selling agent for the offering. Certain dealers purchasing notes for fee-based advisory accounts may forgo a portion of their selling concessions, potentially reducing the investor purchase price to as low as $984.50 per $1,000 in principal amount. The filing also discloses that an affiliate of BofA Finance may pay a referral fee of up to $3.00 per $1,000 in principal amount to other registered broker-dealers involved in distribution.

Contingent Coupon Payment Mechanism and Monthly Distribution Structure

The notes feature a contingent coupon rate of 8.75% per annum, payable monthly at a rate of 0.7292% per month, equaling $7.292 per $1,000 in principal amount per monthly distribution. The filing specifies that this contingent coupon payment is conditional on a critical barrier: the closing level of each of the three underlying indices must be greater than or equal to 70% of its starting value on the applicable monthly observation date for the payment to be made. This means that if any single underlying index falls below the 70% coupon barrier on an observation date, no contingent coupon payment is made that month, despite the other indices potentially performing well.

The contingent payment structure creates meaningful complexity for investors evaluating total return expectations. If all three indices maintain performance above the 70% threshold, investors receive monthly coupon payments throughout the approximate 11-month term. The filing indicates that observation dates are set forth beginning on page PS-4 of the pricing supplement, with contingent payment dates enumerated similarly. This structure ties investor income directly to the simultaneous performance of three distinct market segments, concentrating risk on the condition that all three must remain above the barrier level during each monthly observation period.

Callable Feature and Early Redemption Rights

Beginning on November 19, 2026, BofA Finance retains the right to redeem all outstanding notes, but not a portion thereof, at its option on any monthly Call Payment Date. When exercising this early redemption right, the issuer must pay holders the early redemption amount, defined as $1,000 per $1,000 in principal amount plus any applicable contingent coupon payment if the observation values of each underlying index are at or above their respective coupon barriers on the corresponding observation date. The filing specifies that the issuer must provide notice to the trustee no fewer than five business days but no more than 60 calendar days before the applicable call payment date.

This callable structure gives BofA Finance significant flexibility in managing the notes, particularly if equity indices perform strongly and the contingent coupon payments remain in force. The ability to call the notes monthly beginning approximately three months after issuance provides the issuer with optionality that becomes more valuable in rising market environments where the coupon payments are being made. Investors should note that once called, no further coupon or principal payments accrue, effectively capping the income potential if the issuer exercises this redemption right.

Downside Protection Levels and Principal Risk Exposure

The filing establishes a threshold value of 70% of the starting value for each underlying index, which serves as the critical demarcation line for principal protection at maturity. If the least-performing of the three indices closes at or above this 70% threshold on the valuation date, holders receive full principal repayment of $1,000 per $1,000 in principal amount, plus any final contingent coupon payment if the barrier conditions are satisfied. However, if any underlying index declines by more than 30% from its starting value—meaning the ending value falls below 70% of the starting value—the notes at maturity will be subject to 1:1 downside exposure to the least-performing underlying index.

This downside exposure structure means that if the weakest-performing index declines significantly, investors bear dollar-for-dollar losses below the 70% principal protection level, with the filing explicitly stating that up to 100% of principal may be at risk at maturity under adverse market conditions. For example, if the least-performing index declines 40% from its starting value, the redemption amount would be calculated to reflect that 40% loss applied to the principal investment. The filing emphasizes that "the Redemption Amount (excluding any final Contingent Coupon Payment) will be less than 70.00% of the principal amount and you could lose up to 100.00% of your investment in the Notes," underscoring the asymmetric risk profile inherent in the structure.

Index Selection and Performance Interdependency

The notes are linked to three distinct equity market indices representing different market segments and characteristics. The Nasdaq-100 Index captures large-cap technology and growth companies, the Russell 2000 Index represents small-cap and mid-cap companies, and the S&P 500 Index encompasses large-cap companies across all sectors. Each index serves as a price return index according to the filing, meaning dividend reinvestment is not factored into the index calculation. The least-performing underlying—the index with the lowest underlying return calculated from starting value to ending value—determines whether principal protection applies at maturity and becomes the reference for downside calculations if the barrier is breached.

The interdependency of coupon payments on all three indices simultaneously creates a structural risk that differs from single-index linked notes. Even if two indices perform strongly and remain well above the 70% barrier, a decline in any single index below that threshold eliminates that month's contingent coupon payment entirely. This "all-or-nothing" coupon structure on a monthly basis means that temporary weakness in any single market segment can interrupt income flow, and persistent weakness in the weakest performer determines the extent of principal loss at maturity. Investors evaluating these notes must consider the historical correlation patterns and potential divergence scenarios among technology, small-cap, and broad large-cap equity markets.

Credit Support and Guarantee Structure

All payments on the notes, including principal redemption and contingent coupon payments, are subject to the credit risk of both BofA Finance LLC as the note issuer and Bank of America Corporation as the guarantor. The guarantee is stated as "fully and unconditional," providing investors with recourse to the creditworthiness of Bank of America Corporation if BofA Finance fails to meet its obligations. However, the filing prominently discloses that the notes are "Not FDIC Insured" and "Are not Bank Guaranteed," establishing clear distinctions that these structured products do not carry the protections of deposit insurance or bank guarantee programs despite the involvement of a major U.S. financial institution.

The credit risk associated with the guarantor is material to the investment profile. While Bank of America Corporation is one of the largest financial institutions in the United States, investors should understand that the guarantee obligation is only as strong as the guarantor's financial condition at the time performance is required. The filing provides no quantitative credit metrics or rating information regarding the guarantor, directing investors instead to the accompanying prospectus and prospectus supplement for such disclosures. This credit layering—reliance on both the issuer and guarantor—does not eliminate credit risk but rather creates a secondary recourse mechanism.

Acceleration and Default Provisions for Note Holders

The filing establishes that if an event of default occurs with respect to the notes and is continuing, the amount payable upon any acceleration permitted under the senior indenture will be calculated as though the acceleration date were the maturity date and as though the valuation date were the third trading day prior to the acceleration date. This means that holders would receive the redemption amount as defined in the note terms, calculated using the index levels on this deemed valuation date, rather than receiving the full principal amount immediately. The calculation agent would determine whether a final contingent coupon payment is payable based on the underlying index levels on this accelerated valuation date, with any such contingent coupon payment prorated to reflect the length of the final contingent payment period.

The filing specifies that in the event of default in payment of the notes at maturity or upon acceleration, the notes will not bear a default interest rate, meaning no additional compensation accrues to investors for the issuer's failure to pay on schedule. This provision removes a potential source of recovery beyond the redemption amount calculation. Investors should note that the acceleration mechanism ties recovery to market performance on a specified date, introducing continued market exposure and downside risk even in a default scenario, rather than providing a fixed recovery amount independent of index performance.

Listing Status and Liquidity Considerations

The filing explicitly states that the notes will not be listed on any securities exchange, meaning investors will not have access to continuous public pricing or the trading mechanisms available through organized exchange markets. This absence of exchange listing has significant implications for secondary market liquidity and price discovery. Investors seeking to exit their positions prior to maturity would need to rely on over-the-counter trading arrangements, which may involve wider bid-ask spreads and may not be readily available, particularly if market conditions deteriorate or volatility increases substantially.

The lack of an established secondary market creates a "hold-to-maturity" dynamic for many investors, effectively locking in their investment decisions unless BofA Finance exercises its early call option. The filing's disclosure that the initial estimated value of the notes is between $920 and $970 per $1,000 in principal amount at pricing—significantly less than the $1,000 public offering price—suggests that the embedded cost of the index optionality and callable features is substantial. Secondary market purchasers, should a market emerge, would need to price not only the remaining term but also recalibrate expectations based on how index performance has evolved since issuance.

Valuation Methodology and Risk Factor Disclosure

The filing indicates that the actual value of the notes at any time will reflect many factors and cannot be predicted with accuracy, explicitly directing potential purchasers to 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 accompanying prospectus supplement, and page 7 of the accompanying prospectus. The filing also references a "Structuring the Notes" section on page PS-25 for additional valuation information. This multi-document structure emphasizes the complexity of valuing structured products with embedded optionality, conditional payments, and index-linked exposure.

The filing makes clear that this preliminary pricing supplement "is not complete and may be changed," indicating that final terms, pricing details, and risk disclosures may differ from the preliminary version filed with the Securities and Exchange Commission. The preliminary status and explicit disclaimers regarding the incompleteness of the document suggest that investors should await the final pricing supplement before making investment decisions. The filing notes that the pricing supplement and accompanying documents are filed pursuant to Rule 424(b)(2) under the Securities Act of 1933, with registration statement numbers 333-290665 and 333-290665-01, indicating this offering builds on existing registration statements for equity-linked note programs.

Timeline for Pricing, Issuance, and Maturity

According to the filing, the notes are expected to price on August 14, 2026, with issuance scheduled for August 19, 2026, and maturity on July 19, 2027. This timeline yields an approximate 11-month investment period from issuance to maturity, during which investors receive monthly contingent coupon payments if index barriers are maintained. The valuation date is set for July 14, 2027, subject to postponement as described elsewhere in the product supplement documentation. The starting value for each index will be its closing level on the pricing date of August 14, 2026, establishing the reference point against which all subsequent performance will be measured.

The monthly observation dates, contingent payment dates, and call payment dates are enumerated beginning on pages PS-4 and PS-5 of the pricing supplement, with each call payment date also functioning as a contingent payment date. This integrated calendar structure means that the issuer's redemption decision points coincide with coupon payment calculation dates, creating alignment between when the issuer has optionality and when investors receive contingent income. The relatively compressed timeline compared to longer-dated structured products concentrates both the coupon payment opportunities and the index performance observation windows into a single calendar year following issuance.

Regulatory Status and Investment Suitability Considerations

The filing prominently discloses that the Securities and Exchange Commission, any state securities commission, or any other regulatory body has not approved or disapproved of these securities or determined whether the pricing supplement and accompanying documents are truthful or complete. This standard regulatory disclaimer emphasizes that regulatory review or approval does not constitute an endorsement of the offering or an assessment of the notes' suitability for any particular investor. The filing further states that any representation to the contrary constitutes a criminal offense, establishing the seriousness with which such misrepresentations are treated.

The filing's emphasis on important differences between the notes and conventional debt securities underscores that these structured products carry distinct risk characteristics compared to standard corporate bonds or bank debt. Potential purchasers are directed to comprehensive risk factor disclosures spanning multiple documents, suggesting that the risk profile warrants careful and detailed evaluation. The filing does not present investment suitability guidance or recommendation of the notes for any investor category, leaving suitability determinations to individual investors and their financial advisors based on their specific circumstances, risk tolerance, and investment objectives.