Bank of America Finance Launches $228 Million Digital Return Notes Linked to Nasdaq-100, Russell 2000, and S&P 500 Indices

Structure and Pricing Details of the Digital Return Notes Offering

BofA Finance LLC structured the Digital Return Notes as equity-linked instruments blending principal protection elements with conditional upside participation. Priced at $1,000 per note with an underwriting discount of $21.75 per $1,000 principal, the net proceeds to the issuer were $978.25 per note before expenses. The total offering reached $228 million in principal amount, with dealers earning up to $4.275 million in underwriting compensation. The notes are not exchange-traded and carry CUSIP 09712GXT6.

The initial estimated value at pricing was $970.60 per $1,000 principal, notably below the $1,000 public offering price. This difference reflects Bank of America's internal funding costs, underwriting discounts, referral fees, and hedging expenses embedded in the product. The company disclosed that these costs reduce the economic terms to investors relative to the theoretical fair value calculated at pricing.

Index Performance Thresholds and Maturity Payment Mechanics

Redemption depends on the closing levels of the Nasdaq-100, Russell 2000, and S&P 500 indices on August 20, 2027. Starting levels were 28,604.23 for Nasdaq-100 (threshold 20,022.96), 2,942.429 for Russell 2000 (threshold 2,059.700), and 7,443.28 for S&P 500 (threshold 5,210.30). If all indices close at or above 70% of their initial values, investors receive $1,100 per $1,000 principal, a 10% total return over 13 months. This binary payout means investors either earn the 10% return or risk principal loss.

If the lowest-performing index falls below its threshold (a decline exceeding 30%), investors face proportional losses linked to that index. Redemption can drop below 70% of principal, with potential loss of up to 100% of capital. The notes pay no periodic interest; all returns are realized at maturity based on index performance on August 20, 2027, subject to postponement rules in the product supplement.

Credit Risk and Guarantor Support

Bank of America Corporation unconditionally guarantees the Digital Return Notes, supporting BofA Finance LLC's payment obligations. Redemption and principal repayment depend on the creditworthiness of both BofA Finance and Bank of America Corporation. The notes are senior unsecured obligations under Bank of America's indenture. In an Event of Default, holders may accelerate payment, calculated as if the acceleration date were maturity, with index levels measured three trading days prior.

The notes are not FDIC insured and carry no bank guarantee despite the corporate backing. Credit risk is a key consideration since payments depend on Bank of America's financial health. No default interest accrues on delayed payments, meaning investors receive no compensation beyond the original redemption amount if payments are late.

Distribution and Underwriting Compensation

BofA Securities, Inc., an affiliate of BofA Finance LLC, acts as calculation and selling agent. BofA Securities may receive referral fees up to $3.00 per $1,000 principal from other registered broker-dealers involved in distribution. Some dealers selling to fee-based advisory accounts may waive selling concessions, allowing purchases at prices as low as $978.25 per note, equal to net proceeds before expenses.

This flexible distribution model maintains issuer economics while accommodating different investor classes. The $21.75 underwriting discount per $1,000 principal translates to $4.275 million total compensation. Waiving concessions for advisory accounts and referral fee arrangements help preserve Bank of America's funding advantage versus conventional debt issuance.

Economic Terms and Internal Funding Rate Benefits

The notes' economic terms reflect Bank of America's internal funding rate, typically lower than public market rates for conventional debt. The spread between internal funding costs, underwriting discounts, and hedging charges reduces economic value to investors while enhancing issuer profitability.

Bank of America affiliates enter hedging agreements to manage exposure to the three indices. Hedging and structuring costs are embedded in the $29.40 gap between the $1,000 offering price and $970.60 initial estimated value. Investors should recognize these cost layers reduce the actual economic benefit relative to the theoretical index-linked payoff.

Risk Factors Specific to Digital Return Notes

Digital Return Notes differ significantly from traditional bonds, lacking periodic coupons and principal guarantees. Redemption depends solely on index performance, with a binary outcome: a 10% return or potential principal loss. Investors must be confident all three indices will stay above 70% thresholds through August 2027.

The lowest-performing index dictates the overall outcome, creating correlation risk. A sharp decline in any one index below its threshold affects the entire investment regardless of others’ performance. Market volatility and economic cycles could cause barrier breaches across large-cap (S&P 500), mega-cap tech (Nasdaq-100), and small-cap (Russell 2000) equities. Credit risk of Bank of America also impacts note value, with credit rating deterioration potentially affecting secondary market prices before maturity.

Regulatory Filing and Registration Information

The Digital Return Notes were registered under SEC Registration Statements Nos. 333-290665 and 333-290665-01 and filed as a Rule 424(b)(2) pricing supplement to a December 8, 2025 prospectus, including a Series A supplement and Product Supplement EQUITY-1 dated December 8, 2025. The pricing supplement was filed on July 20, 2026, two days before issuance. This shelf registration enables issuance of equity-linked notes under an existing framework with specific terms in the pricing supplement.

The SEC has neither approved nor disapproved the notes, nor assessed the truthfulness or completeness of disclosures. Its role is limited to ensuring required disclosures are provided. Investors should review the base prospectus, series supplement, and pricing supplement to fully understand risks and rights.

Valuation and Secondary Market Considerations

The initial estimated value of $970.60 per note reflects a $29.40 discount (2.94%) to the $1,000 offering price, illustrating embedded costs and issuer margins. Note value will fluctuate based on index volatility, interest rates, Bank of America credit spreads, and likelihood of indices remaining above thresholds.

Notes are not exchange-listed; secondary market liquidity depends on BofA Securities or other dealers’ willingness to trade. Early exit may involve wide bid-ask spreads or low demand. Illiquidity is a significant factor for investors needing to liquidate before August 25, 2027, especially if market conditions worsen.

Context Within Bank of America's Structured Finance Program

The Digital Return Notes are part of Bank of America's broad structured products portfolio covering multiple asset classes, indices, and payoff designs. BofA Finance is a major issuer of equity-linked notes and other market-dependent securities. The shelf registration with multiple series supplements allows efficient market offerings by updating pricing while relying on base prospectus disclosures.

BofA Finance leverages its lower internal funding rates to create profitable structured products, converting borrowing cost advantages into revenue through the spread between offering prices and hedging costs. Distribution via BofA Securities and affiliates reaches diverse investor channels, including fee-based advisory platforms where concessions may be waived to remain competitive.