BofA Finance Launches $1.133 Billion Contingent Income Callable Yield Notes Linked to Three Major Indices

Structured Note Terms and Coupon Structure

The notes issued by BofA Finance and guaranteed by Bank of America Corporation carry a public offering price of $1,000.00 per note, with total proceeds before expenses of $1.131 billion after accounting for underwriting discounts of $1.415 million. The initial estimated value of the notes as of the pricing date is $987.80 per $1,000.00 principal amount, which represents a discount to the offering price and reflects the value of embedded options and structuring components. The underwriting discount is $7.50 per $1,000.00 principal amount, though dealers serving fee-based advisory accounts may reduce this discount, resulting in a lower offering price for certain account types.

The contingent coupon mechanism requires that all three underlying indices—the Nasdaq-100 Technology Sector Index, Russell 2000 Index, and S&P 500 Index—remain at or above 70% of their starting values for monthly coupon payments to be made. The contingent coupon rate of 12.20% per annum, payable monthly at $10.167 per $1,000.00 principal amount, represents a relatively attractive income stream conditional upon index performance. This structure creates a barrier that must be continuously satisfied each month; should any single underlying fall below its 70% coupon barrier on an observation date, no contingent coupon payment is made for that period, effectively penalizing investors if even one index declines modestly relative to its entry level.

Index Performance Thresholds and Downside Exposure

The notes employ a dual-threshold structure designed to define both coupon payment conditions and final redemption amounts. The starting values for the three indices were established at the time of pricing: the Nasdaq-100 Technology Sector Index at 16,934.43, the Russell 2000 Index at 2,987.395, and the S&P 500 Index at 7,509.20. The coupon barrier for each index is set at 70% of its starting value, while a separate threshold value at 60% of the starting value determines the boundary between full principal return and downside exposure at maturity. These threshold levels establish a 10-percentage-point buffer zone within which the notes behave differently depending on which underlying performs most poorly at maturity.

If the least-performing underlying (the one with the lowest return of the three) remains above its threshold value of 60% of its starting value at maturity, investors receive full principal return of $1,000.00 per note plus any final contingent coupon payment if applicable. However, if the worst-performing index falls below its threshold value, the notes impose 1:1 downside exposure to declines in that least-performing underlying, with up to 100% of principal at risk. This asymmetric payoff structure means that while upside is capped at coupon payments and principal return, downside losses can be substantial if market volatility or sector-specific weakness causes one of the three indices to decline more than 40% from its starting level. The disclosure filing states that investors could lose up to 100% of their investment if the least-performing underlying falls significantly below its threshold.

Optional Early Redemption Provisions and Call Schedule

BofA Finance retains the right to call the notes at its discretion beginning October 26, 2026, on any monthly call payment date thereafter. Upon redemption, the issuer pays the early redemption amount of $1,000.00 per $1,000.00 principal amount, plus the applicable contingent coupon payment if the observation value of each underlying is at or above its coupon barrier on the corresponding observation date. This optional call feature allows the issuer to terminate the notes early should market conditions become unfavorable or if the embedded cost of the contingent coupon becomes excessive relative to expected market movements. The issuer must provide notice to the trustee at least five business days but not more than 60 calendar days before any call payment date, giving investors limited visibility into redemption decisions.

The call feature creates a reinvestment risk for note holders, as early redemption eliminates any remaining upside potential from the contingent coupon and forces investors to redeploy capital in what may be a less favorable interest rate or market environment. The early redemption amount does not include any additional premium to compensate for early termination, meaning investors receive no benefit from calling the notes early. This structure incentivizes the issuer to call the notes if market performance of the underlyings becomes very strong, effectively capping upside for investors while allowing the issuer to manage its duration risk and contingent liability exposure.

Credit Guarantees and Counterparty Risk Considerations

All payments on the notes—including monthly contingent coupon payments, principal at maturity, and early redemption amounts—are subject to the credit risk of BofA Finance LLC as the issuer and Bank of America Corporation as the guarantor. Bank of America provides a full and unconditional guarantee of all obligations under the notes, meaning that noteholders have recourse to BAC should BofA Finance fail to meet its obligations. While this guarantee reduces counterparty risk significantly given Bank of America's size and credit standing, investors are nevertheless exposed to the credit quality of one of the largest U.S. financial institutions, which carries its own systemic risks and potential regulatory or operational challenges.

The notes are not FDIC insured and are not bank-guaranteed products, despite their issuance by Bank of America-affiliated entities. This distinction is material because it means that investors' protection is limited to the creditworthiness of the issuer and guarantor rather than the deposit insurance protections available to traditional bank products. The filing explicitly states that the notes may lose value, reflecting the combined effects of embedded option costs, structured note valuation dynamics, and potential credit deterioration. Investors should evaluate whether the guaranteed coupon payments and principal protection mechanisms justify the embedded costs and complexity relative to direct index investments or conventional fixed-income securities.

Valuation Methodology and Calculation Agent Role

BofA Securities, Inc., an affiliate of BofA Finance, serves as both the calculation agent and the selling agent for the notes, creating potential conflicts of interest in the pricing and valuation of the structured products. The calculation agent is responsible for determining observation values of the three underlying indices on each observation date, calculating whether coupon barriers and threshold values have been met, and computing final redemption amounts at maturity or upon early redemption or acceleration. The filing does not disclose the specific calculation methodology for determining the least-performing underlying or the precise mechanics for any pro-rata adjustments in the event of early redemption.

The initial estimated value of the notes as of the pricing date is $987.80 per $1,000.00 principal amount, representing approximately $1.12 million in total embedded value loss across the $1.133 billion offering. This discount reflects the cost of the embedded options and the callable feature that benefits the issuer but reduces value for noteholders. The filing notes that the actual value of the notes at any time will reflect many factors and cannot be predicted with accuracy, acknowledging the inherent difficulty in valuing exotic structured products that depend on future index levels, volatility, and interest rate movements. Investors purchasing the notes should recognize that secondary market liquidity may be limited and that any attempt to exit the position before maturity could result in further valuation adjustments not disclosed in the prospectus materials.

Index Selection and Sector Diversification Trade-Offs

The notes link returns to three distinct indices representing different market segments and capitalization tiers: the Nasdaq-100 Technology Sector Index (NDXT) focuses on large-cap technology companies, the Russell 2000 Index (RTY) represents small-cap equities, and the S&P 500 Index (SPX) encompasses 500 large-cap U.S. companies across sectors. By requiring all three indices to satisfy the coupon barrier simultaneously, the note structure creates a "weakest link" payoff that is sensitive to the worst-performing segment among large-cap tech, broad-market large-cap, and small-cap stocks. This diversification across indices is intended to reduce concentration risk relative to a single-index note, but it also creates a higher probability that at least one index will fall below the coupon barrier in any given month, reducing the likelihood of consistent coupon payments during periods of broad market weakness.

The starting values and threshold calculations reveal the precise index levels established on the pricing date: NDXT at 16,934.43 (coupon barrier 11,854.10; threshold 10,160.66), RTY at 2,987.395 (coupon barrier 2,091.177; threshold 1,792.437), and SPX at 7,509.20 (coupon barrier 5,256.44; threshold 4,505.52). Investors should note that performance of the Nasdaq-100 Technology Sector Index may diverge significantly from the broader S&P 500 or small-cap Russell 2000, particularly if technology valuations compress or interest rates rise sharply. The selection of three indices with varying volatility profiles and sector exposures means that the notes are suitable primarily for investors with a neutral to moderately bullish outlook across all three market segments simultaneously.

Risk Factors and Loss Scenarios

The pricing supplement acknowledges multiple risk factors that investors must carefully consider before purchasing the notes. The most significant risk is that if the least-performing underlying declines more than 40% from its starting value, noteholders face 1:1 downside exposure to that index with potential loss of up to 100% of principal. Historical equity market volatility suggests that declines exceeding 40% in any individual index within a 2.5-year holding period are possible though not highly probable under normal market conditions. However, during periods of financial crisis, geopolitical stress, or sector-specific disruption, such declines can occur rapidly and without significant advance warning, potentially coinciding with broader portfolio weakness in investor accounts.

Secondary market liquidity risk is also material, as the notes will not be listed on any securities exchange and may have limited trading volumes in the over-the-counter market. Investors seeking to exit positions before maturity may face significant bid-ask spreads or be unable to find willing buyers at any price if market conditions deteriorate or investor interest in structured products declines. The filing notes that the actual value of the notes at any time will reflect many factors and cannot be predicted with accuracy, underscoring the difficulty noteholders will face in assessing fair value or hedging their positions after purchase. Additionally, the contingent coupon structure creates reinvestment risk, as investors who receive monthly payments must redeploy that cash at prevailing market rates, which may be lower than the 12.20% coupon rate, especially if interest rates decline during the note term.

Registration and Regulatory Framework

The notes were filed pursuant to Rule 424(b)(2) under the Securities Act of 1933, with registration statement numbers 333-290665 and 333-290665-01. The pricing supplement incorporates by reference the prospectus dated December 8, 2025, the Series A Prospectus Supplement dated December 8, 2025, and Product Supplement EQUITY-1 also dated December 8, 2025. This multi-layer documentation structure is standard for structured notes and provides detailed risk disclosures and legal terms governing the notes. The SEC has not approved or disapproved the notes or determined if the pricing supplement and accompanying documents are truthful or complete, as is typical for securities offered under Rule 424(b)(2) registration statements.

The notes carry a CUSIP number of 09712GQJ6, enabling identification and settlement through standard clearance and settlement systems. The notes will be issued in minimum denominations of $1,000.00 and whole multiples thereof, restricting purchase to institutional investors and high-net-worth individuals capable of absorbing potential losses. The terms of the notes are governed by the senior indenture relating to the notes and the indenture provisions incorporated by reference in the accompanying prospectus materials. Events of Default and Rights of Acceleration provisions are detailed on page 51 of the accompanying prospectus, establishing procedures for acceleration and payment calculations in the event of issuer default or other triggering events.

Distribution and Selling Arrangements

BofA Securities, Inc. serves as the sole selling agent for the notes and received the full underwriting discount of $7.50 per $1,000.00 principal amount, totaling approximately $1.415 million on the $1.133 billion offering. In addition to the underwriting discount, an affiliate of BofA Finance may pay a referral fee of up to $7.50 per $1,000.00 principal amount in connection with distribution to other registered broker-dealers, potentially doubling the total distribution cost to $15.00 per $1,000.00 principal amount. Certain dealers purchasing the notes for sale to fee-based advisory accounts may forgo some or all of their selling concessions, allowing those advisory clients to purchase the notes at a price as low as $992.50 per $1,000.00, representing a $7.50 savings relative to the standard public offering price of $1,000.00.

The distribution arrangement grants BofA Securities primary responsibility for marketing and selling the notes, though the affiliate referral fee structure suggests that other broker-dealers may be enlisted to reach institutional investor bases outside Bank of America's direct distribution network. The company did not disclose specific information regarding expected secondary market making activities, any anticipated spreads in over-the-counter trading, or whether BofA Securities committed to providing liquidity for noteholders seeking to exit positions. The use of affiliated entities for both issuance and distribution creates an integrated revenue stream for Bank of America entities, with potential incentives to maximize note issuance volumes rather than prioritize investor suitability or secondary market support.