UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2000       Commission File Number 0-22787

                             FOUR OAKS FINCORP, INC.
                 (Name of small business issuer in its charter)

         North Carolina                                     56-2028446
-------------------------------                     ----------------------------
(State or other jurisdiction of                     (IRS Employer Identification
 incorporation or organization)                     Number)

                               6114 U S 301 South
                            Four Oaks, North Carolina
                    (Address of principal executive offices)

                                      27524
                                   (Zip Code)

Issuer's telephone number:                           (919) 963-2177
                                                     --------------

Securities registered under Section 12(b) of the Act: NONE
Securities registered under Section 12(g) of the Act:

                     Common Stock, par value $1.00 per share
                                (Title of Class)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days: |X|YES
|_| NO

Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |_|

                                   $22,660,636
               --------------------------------------------------
               (Issuer's revenues for its most recent fiscal year)

                                   $23,296,778
               --------------------------------------------------
(Aggregate value of voting and non-voting common equity held by nonaffiliates of
  the registrant based on book value (due to lack of public market) of Common
                         Stock as of December 31, 2000)

                                    2,077,707
               --------------------------------------------------
 (Number of shares of Common Stock, par value $1.00 per share, outstanding as of
                                 March 5, 2001)

Documents Incorporated by Reference                           Where Incorporated
-----------------------------------                           ------------------
(1)  Proxy Statement for the Annual                           Part III
     Meeting of Shareholders to be held April 23, 2001

<PAGE>

PART I

Item 1 - Business.
------------------

         On February 5, 1997, Four Oaks Bank & Trust Company (referred to herein
as the "bank") formed Four Oaks Fincorp, Inc. for the purpose of serving as a
holding company for the bank. We have no significant assets other than cash and
the capital stock of the bank. Our corporate offices are located at 6114 US 301
South, Four Oaks, North Carolina 27524.

         The bank was incorporated under the laws of the State of North Carolina
in 1912. The bank is not a member of the Federal Reserve System. In Four Oaks,
the main office is located at 6144 US 301 South and an additional branch is
located at 111 N. Main Street. The bank also operates a branch office in
Clayton, North Carolina at 102 East Main Street, two in Smithfield, North
Carolina at 128 North Second Street, and 403 South Bright Leaf Boulevard, one in
Garner, North Carolina at 200 Glen Road, one in Benson, North Carolina at
200 E. Church Street and one in Fuquay-Varina, North Carolina at 325 N. Judd
Parkway Northeast.

         The bank is a community bank engaged in the general commercial banking
business in Johnston and Wake Counties, North Carolina. Johnston County is
contiguous to Wake, Wayne, Wilson, Harnett, Sampson and Nash counties. Wake
County is contiguous to Johnston, Durham, Harnett, Nash, Franklin, Granville and
Chatham counties.

         As of December 31, 2000, the bank had assets of $258,328,756, net loans
outstanding of $191,727,392 and deposits of $216,693,091. The bank has enjoyed
considerable growth over the past five (5) years as evidenced by the 94%
increase in assets, the 16% increase in net loans outstanding, and the 82%
increase in deposits since December 31, 1995.

         The bank provides a full range of banking services, including such
services as checking accounts, savings accounts, NOW accounts, money market
accounts, certificates of deposit, a student checking and savings program; loans
for businesses, agriculture, real estate, personal uses, home improvement and
automobiles; equity lines of credit; credit cards; individual retirement
accounts; discount brokerage services; safe deposit boxes; bank money orders;
electronic funds transfer services, including wire transfers; internet banking
and bill pay services; traveler's checks; and free notary services to all bank
customers. In addition, the bank provides automated teller machine access to its
customers for cash withdrawals through the services of the HONOR and CIRRUS
networks which offer customers access to automated teller machines nationwide.
At present, the bank does not provide the services of a trust department.

         The majority of the bank's customers are individuals and small to
medium-size businesses located in Johnston County and surrounding areas. The
deposits and loans are well diversified with no material concentration in a
single industry or group of related industries. There are no seasonal factors
that would have any material adverse effect on the bank's business, and the bank
does not rely on foreign sources of funds or income.

         From its headquarters located in Four Oaks and its eight offices
located in Four Oaks, Clayton, Smithfield, Garner, Benson and Fuquay-Varina, the
bank serves a major portion of Johnston County and a small part of Wake and
Harnett Counties. Johnston County has a diverse economy and is not dependent on
any one particular industry. The leading industries in the area include
electronics, pharmaceutical, textile, agriculture, livestock, and poultry.

         Commercial banking in North Carolina is extremely competitive due in
large part to statewide branching. The bank competes in its market area with
some of the largest banking organizations in the state and other financial
institutions such as federally and state-chartered savings and loan institutions
and credit unions as well as consumer finance companies, mortgage companies and
other lenders engaged in the business of extending credit. Many of the bank's
competitors have broader geographic markets and higher lending limits than the
bank and are also able to provide more services and make greater use of media
advertising.

                                       1
<PAGE>

         Interstate banking in North Carolina and other Southeastern states has
greatly increased the size and financial resources of some of the bank's
competitors. In addition, as a result of interstate banking, out-of-state
commercial banks may compete in North Carolina by acquiring North Carolina banks
and thus increase the prospects for additional competition in North Carolina.
See "Holding Company Regulation" below.

         Despite the competition in its market area, the bank believes that it
has certain competitive advantages which distinguish it from its competition.
The bank believes that its primary competitive advantages are its strong local
identity and affiliation with the community and its emphasis on providing the
very best service possible at reasonable and competitive prices. The bank
believes that it offers customers modern, high-tech banking services without
forsaking community values such as prompt, personal service and friendliness.
Amounts spent on research activities relating to the development or improvement
of services have been immaterial over the past two years. At December 31, 2000,
the bank employed 100 full time equivalent employees.

         The following table sets forth certain financial data and ratios with
respect to the bank for the years ended December 31, 2000, 1999, and 1998. This
information should be read in conjunction with and is qualified in its entirety
by reference to the more detailed audited financial statements and notes thereto
which accompany this report:

<TABLE>
<CAPTION>

                                                        2000                        1999                    1998
                                                        ----                        ----                    ----
<S>                                                   <C>                         <C>                     <C>
                                                                      (In thousands, except ratios)
Net Income                                            $3,117                      $3,096                  $2,578
Average equity capital accounts                      $23,550                     $20,827                 $18,314
Ratio of net income to average equity
    capital accounts                                  13.24%                      14.87%                  14.08%
Average daily total deposits                        $198,072                    $191,307                $180,763
Ratio of net income to average daily
    total deposits                                     1.57%                       1.62%                   1.43%
Average daily loans                                 $182,874                    $164,863                $153,244
Ratio of average daily loans to average
    daily total deposits                              92.33%                      86.18%                  84.78%
</TABLE>

Governmental Regulation
-----------------------

         Holding companies, banks and many of their non-bank affiliates are
extensively regulated under both federal and state law. The following is a brief
summary of certain statutes, rules and regulations affecting us and the bank.
This summary is qualified in its entirety by reference to the particular
statutory and regulatory provisions referred to below and is not intended to be
an exhaustive description of the statutes or regulations applicable to our
business or the business of the bank. Supervision, regulation and examination of
us and the bank by bank regulatory agencies is intended primarily for the
protection of the bank's depositors rather than our shareholders.

         Holding Company Regulation
         --------------------------

         General. We are a holding company registered with the Board of
Governors of the Federal Reserve System under the Bank Holding Company Act of
1956 (the "BHCA"). As such, we are subject to the supervision, examination and
reporting requirements contained in the BHCA and the regulation of the Federal
Reserve. The bank is also subject to the BHCA. The BHCA requires that a bank
holding company obtain the prior approval of the Federal Reserve before (i)
acquiring direct or indirect ownership or control of more than five percent of
the voting shares of any bank, (ii) taking any action that causes a bank to
become a subsidiary of the bank holding company, (iii) acquiring all or
substantially all of the assets of any bank or (iv) merging or consolidating
with any other bank holding company.

                                       2
<PAGE>

         The BHCA generally prohibits a bank holding company, with certain
exceptions, from engaging in activities other than banking, or managing or
controlling banks or other permissible subsidiaries, and from acquiring or
retaining direct or indirect control of any company engaged in any activities
other than those activities determined by the Federal Reserve to be closely
related to banking, or managing or controlling banks, as to be a proper incident
thereto. In determining whether a particular activity is permissible, the
Federal Reserve must consider whether the performance of such an activity can
reasonably be expected to produce benefits to the public, such as greater
convenience, increased competition or gains in efficiency, that outweigh
possible adverse effects, such as undue concentration of resources, decreased or
unfair competition, conflicts of interest or unsound banking practices. For
example, banking, operating a thrift institution, extending credit or servicing
loans, leasing real or personal property, conducting discount securities
brokerage activities, performing certain data processing services, acting as
agent or broker in selling credit life insurance and certain other types of
insurance underwriting activities have all been determined by regulations of the
Federal Reserve to be permissible activities.

         Pursuant to delegated authority, the Federal Reserve Bank of Richmond
has authority to approve certain activities of holding companies within its
district, including us, provided the nature of the activity has been approved by
the Federal Reserve. Despite prior approval, the Federal Reserve has the power
to order a holding company or its subsidiaries to terminate any activity or to
terminate its ownership or control of any subsidiary when it has reasonable
cause to believe that continuation of such activity or such ownership or control
constitutes a serious risk to the financial safety, soundness or stability of
any bank subsidiary of that bank holding company.

         Financial Holding Companies. On November 12, 1999, the President of the
United States signed into law the Gramm-Leach-Bliley Act (the "GLB"), which
alters the regulatory framework for banking and other financial services
companies. The GLB creates a new type of holding company called a "financial
holding company." The new financial holding company structure allows banks,
insurance companies, and securities firms to affiliate within a single entity,
provided that the financial holding company satisfies and maintains certain new
regulatory standards. Bank holding companies that meet these standards may elect
to become financial holding companies.

         At the present time, we have elected to remain a bank holding company,
and therefore we remain subject to the same regulatory framework as before the
enactment of the GLB. However, the financial holding company structure created
by the GLB permits insurance companies or securities firms operating under the
financial holding company structure to acquire us, and, if we elect to become a
financial holding company in the future, we could acquire insurance companies or
securities firms.

         In addition to creating the more flexible financial holding company
structure, the GLB introduced several additional customer privacy protections
that will apply to us and the bank. The GLB's privacy provisions require
financial institutions to, among other things, (i) establish and annually
disclose a privacy policy, (ii) give consumers the right to opt out of
disclosures to nonaffiliated third parties, with certain exceptions, (iii)
refuse to disclose consumer account information to third-party marketers and
(iv) follow regulatory standards to protect the security and confidentiality of
consumer information.

         Pursuant to the GLB's rulemaking provisions, the Office of the
Comptroller of the Currency, the Board of Governors of the Federal Reserve
System, the Federal Deposit Insurance Corporation and the Office of Thrift
Supervision adopted regulations, effective July 1, 2001, establishing standards
for safeguarding customer information. Such regulations provide financial
institutions guidance in establishing and implementing administrative, technical
and physical safeguards to protect the security, confidentiality and integrity
of customer information.

         Mergers and Acquisitions. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "IBBEA") permits interstate acquisitions
of banks and bank holding companies without geographic limitation, subject to
any state requirement that the bank has been organized for a minimum period of
time, not to exceed five (5) years, and the requirement that the bank holding
company, prior to, or following the


                                       3
<PAGE>

proposed acquisition, controls no more than ten percent (10%) of the total
amount of deposits of insured depository institutions in the U.S. and no more
than thirty percent (30%) of such deposits in any state (or such lesser or
greater amount set by state law).

         In addition, the IBBEA permits a bank to merge with a bank in another
state as long as neither of the states has opted out of the IBBEA prior to May
31, 1997. The state of North Carolina has "opted in" to such legislation,
effective June 22, 1995. In addition, a bank may establish and operate a de novo
branch in a state in which the bank does not maintain a branch if that state
expressly permits de novo interstate branching. As a result of North Carolina
having opted-in, unrestricted interstate de novo branching is permitted in North
Carolina.

         Additional Restrictions and Oversight. Subsidiary banks of a bank
holding company are subject to certain restrictions imposed by the Federal
Reserve on any extensions of credit to the bank holding company or any of its
subsidiaries, investments in the stock or securities thereof and the acceptance
of such stock or securities as collateral for loans to any borrower. A bank
holding company and its subsidiaries are also prevented from engaging in certain
tie-in arrangements in connection with any extension of credit, lease or sale of
property or furnishing of services. An example of a prohibited tie-in would be
any arrangement that would condition the provision or cost of services on a
customer obtaining additional services from the bank holding company or any of
its other subsidiaries.

         The Federal Reserve may issue cease and desist orders against bank
holding companies and non-bank subsidiaries to stop actions believed to present
a serious threat to a subsidiary bank. The Federal Reserve also regulates
certain debt obligations, changes in control of bank holding companies and
capital requirements.

         Under the provisions of the North Carolina law, we are registered with
and subject to supervision by the North Carolina Commissioner of Banks.

         Capital Requirements. The Federal Reserve has established risk-based
capital guidelines for bank holding companies and state member banks. The
minimum standard for the ratio of capital to risk-weighted assets (including
certain off balance sheet obligations, such as standby letters of credit) is
eight percent (8%). At least half of this capital must consist of common equity,
retained earnings and a limited amount of perpetual preferred stock and minority
interests in the equity accounts of consolidated subsidiaries, less certain
goodwill items ("Tier 1 capital"). The remainder ("Tier 2 capital") may consist
of mandatory convertible debt securities and a limited amount of other preferred
stock, subordinated debt and loan loss reserves.

         In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
leverage ratio of Tier 1 capital to adjusted average quarterly assets less
certain amounts ("Leverage Ratio") equal to three percent for bank holding
companies that meet certain specified criteria, including having the highest
regulatory rating. All other bank holding companies will generally be required
to maintain a Leverage Ratio of between four percent and five percent.

         The guidelines also provide that bank holding companies experiencing
significant growth, whether through internal expansion or acquisitions, will be
expected to maintain strong capital ratios substantially above the minimum
supervisory levels without significant reliance on intangible assets. The same
heightened requirements apply to bank holding companies with supervisory,
financial, operational or managerial weaknesses, as well as to other banking
institutions if warranted by particular circumstances or the institution's risk
profile. Furthermore, the guidelines indicate that the Federal Reserve will
continue to consider a "tangible Tier 1 Leverage Ratio" (deducting all
intangibles) in evaluating proposals for expansion or new activity. The Federal
Reserve has not advised us of any specific minimum Leverage Ratio or tangible
Tier 1 Leverage Ratio applicable to us.

                                       4
<PAGE>

         As of December 31, 2000, we had Tier 1 risk-adjusted, total regulatory
capital and leverage capital of approximately 12.43%, 13.68% and 9.99%,
respectively, all in excess of the minimum requirements.

         Bank Regulation
         ---------------

         The bank is subject to numerous state and federal statutes and
regulations that affect its business, activities, and operations, and is
supervised and examined by the North Carolina Commissioner of Banks and the
Federal Reserve. The Federal Reserve and the North Carolina Commissioner of
Banks regularly examine the operations of banks over which they exercise
jurisdiction. They have the authority to approve or disapprove the establishment
of branches, mergers, consolidations, and other similar corporate actions, and
to prevent the continuance or development of unsafe or unsound banking practices
and other violations of law. The Federal Reserve and the North Carolina
Commissioner of Banks regulate and monitor all areas of the operations of banks
and their subsidiaries, including loans, mortgages, issuances of securities,
capital adequacy, loss reserves, and compliance with the Community Reinvestment
Act of 1977 (the "CRA") as well as other laws and regulations. Interest and
certain other charges collected and contracted for by banks are also subject to
state usury laws and certain federal laws concerning interest rates.

         The deposit accounts of the bank are insured by the Bank Insurance Fund
(the "BIF") of the Federal Deposit Insurance Corporation (the "FDIC") up to a
maximum of one hundred thousand dollars ($100,000) per insured depositor. The
FDIC issues regulations and conducts periodic examinations, requires the filing
of reports and generally supervises the operations of its insured banks. This
supervision and regulation is intended primarily for the protection of
depositors. Any insured bank that is not operated in accordance with or does not
conform to FDIC regulations, policies, and directives may be sanctioned for
noncompliance. Civil and criminal proceedings may be instituted against any
insured bank or any director, officer or employee of such bank for the violation
of applicable laws and regulations, breaches of fiduciary duties or engaging in
any unsafe or unsound practice. The FDIC has the authority to terminate
insurance of accounts pursuant to procedures established for that purpose.

            The FDIC and the North Carolina Commissioner of Banks have recently
completed their regular periodic examination of the bank. During the course of
such examination, certain loan administration deficiencies were discovered which
resulted in increased risk in the bank's loan portfolio. The board of directors
of the bank has approved a written action plan to improve the bank's loan
administration procedures, to increase the allowance for loan losses, to correct
deficiencies noted on specific loans, to adopt and implement policies and
procedures governing the electronic banking program, and to report progress on
this plan to the board of directors and each of the FDIC and the North Carolina
Commissioner of Banks. Actions already taken by the bank to accomplish the goals
of the action plan include increased staffing in loan review, implementation of
new policies and procedures, and additions to the allowance for loan and lease
losses. The bank will furnish quarterly reports to each of the FDIC and the
North Carolina Commissioner of Banks detailing its implementation of these
steps.

         Under the North Carolina Business Corporation Act, we may not pay a
dividend or distribution, if after giving it effect, we would not be able to pay
our debts as they become due in the usual course of business or our total assets
would be less than our liabilities. In general, our ability to pay cash
dividends is dependent upon the amount of dividends paid by the bank. The
ability of the bank to pay dividends to us is subject to statutory and
regulatory restrictions on the payment of cash dividends, including the
requirement under the North Carolina banking laws that cash dividends be paid
only out of undivided profits and only if the bank has surplus of a specified
level. The Federal Reserve also imposes limits on the bank's payment of
dividends.

         Like us, the bank is required by federal regulations to maintain
certain minimum capital levels. The levels required of the bank are the same as
those required of us. At December 31, 2000, the bank had Tier 1 risk-adjusted,
total regulatory capital and leverage capital of approximately 12.03%, 13.28%
and 9.62%, respectively, all in excess of the minimum requirements.

                                       5
<PAGE>

         The bank is subject to insurance assessments imposed by the FDIC.
Effective January 1, 1997, the FDIC adopted a risk-based assessment schedule
providing for annual assessment rates ranging from 0% to .27% of an
institution's average assessment base, applicable to institutions insured by
both the BIF and the Savings Association Insurance Fund ("SAIF"). The actual
assessment to be paid by each insured institution is based on the institution's
assessment risk classification, which focuses on whether the institution is
considered "well capitalized," "adequately capitalized" or "under capitalized,"
as such terms are defined in the applicable federal regulations. Within each of
these three risk classifications, each institution will be assigned to one of
three subgroups based on supervisory risk factors. In particular, regulators
will assess supervisory risk based on whether the institution is financially
sound with only a few minor weaknesses (Subgroup A), whether it has weaknesses
which, if not corrected, could result in an increased risk of loss to the BIF
(Subgroup B) or whether such weaknesses pose a substantial risk of loss to the
BIF unless corrective action is taken (Subgroup C). The FDIC also is authorized
to impose one or more special assessments in an amount deemed necessary to
enable repayment of amounts borrowed by the FDIC from the United States Treasury
Department and, beginning in 1997, all banks are required to pay additional
annual assessments as set by the Financing Corporation, which was established by
the Competitive Equality Banking Act of 1987.

         The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") provides for, among other things, (i) publicly available annual
financial condition and management reports for certain financial institutions,
including audits by independent accountants, (ii) the establishment of uniform
accounting standards by federal banking agencies, (iii) the establishment of a
"prompt corrective action" system of regulatory supervision and intervention,
based on capitalization levels, with greater scrutiny and restrictions placed on
depositary institutions with lower levels of capital, (iv) additional grounds
for the appointment of a conservator or receiver and (v) restrictions or
prohibitions on accepting brokered deposits, except for institutions which
significantly exceed minimum capital requirements. FDICIA also provides for
increased funding of the FDIC insurance funds and the implementation of
risk-based premiums.

            A central feature of FDICIA is the requirement that the federal
banking agencies take "prompt corrective action" with respect to depositary
institutions that do not meet minimum capital requirements. Pursuant to FDICIA,
the federal bank regulatory authorities have adopted regulations setting forth a
five-tiered system for measuring the capital adequacy of the depositary
institutions that they supervise. Under these regulations, a depositary
institution is classified in one of the following capital categories: "well
capitalized," "adequately capitalized," "under capitalized," "significantly
undercapitalized" and "critically undercapitalized." An institution may be
deemed by the regulators to be in a capitalization category that is lower than
is indicated by its actual capital position if, among other things, it receives
an unsatisfactory examination rating with respect to asset qualify, management,
earnings or liquidity. FDICIA provides the federal banking agencies with
significantly expanded powers to take enforcement action against institutions
which fail to comply with capital or other standards. Such action may include
the termination of deposit insurance by the FDIC or the appointment of a
receiver or conservator for the institution.

         Banks are also subject to the CRA, which requires the appropriate
federal bank regulatory agency, in connection with its examination of a bank, to
assess such bank's record in meeting the credit needs of the community served by
that bank, including low and moderate-income neighborhoods. Each institution is
assigned one of the following four ratings of its record in meeting community
credit needs: "outstanding," "satisfactory," "needs to improve" or "substantial
noncompliance." The regulatory agency's assessment of the bank's record is made
available to the public. Further, such assessment is required of any bank which
has applied to (i) charter a national bank, (ii) obtain deposit insurance
coverage for a newly chartered institution, (iii) establish a new branch office
that will accept deposits, (iv) relocate an office or (v) merge or consolidate
with, or acquire the assets or assume the liabilities of, a federally regulated
financial institution. In the case of a bank holding company applying for
approval to acquire a bank or other bank holding company, the Federal Reserve
will assess the record of each subsidiary bank of the applicant bank holding
company, and such records may be the basis for denying the application.

                                       6
<PAGE>

         Effective May 12, 2000, the GLB's "CRA Sunshine Requirements" call for
financial institutions to disclose publicly certain written agreements made in
fulfillment of the CRA. Banks that are parties to such agreements also must
report to federal regulators the amount and use of any funds expended under such
agreements on an annual basis, along with such other information as regulators
may require. This annual reporting requirement is effective for any agreements
made after May 12, 2000.

         Monetary Policy and Economic Controls
         -------------------------------------

         Both us and the bank are directly affected by governmental policies and
regulatory measures affecting the banking industry in general. Of primary
importance is the Federal Reserve Board, whose actions directly affect the money
supply which, in turn, affects banks' lending abilities by increasing or
decreasing the cost and availability of funds to banks. The Federal Reserve
Board regulates the availability of bank credit in order to combat recession and
curb inflationary pressures in the economy by open market operations in United
States government securities, changes in the discount rate on member bank
borrowings, changes in reserve requirements against bank deposits, and
limitations on interest rates that banks may pay on time and savings deposits.

         Deregulation of interest rates paid by banks on deposits and the types
of deposits that may be offered by banks have eliminated minimum balance
requirements and rate ceilings on various types of time deposit accounts. The
effect of these specific actions and, in general, the deregulation of deposit
interest rates has generally increased banks' cost of funds and made them more
sensitive to fluctuations in money market rates. In view of the changing
conditions in the national economy and money markets, as well as the effect of
actions by monetary and fiscal authorities, no prediction can be made as to
possible future changes in interest rates, deposit levels, loan demand, or our
business and earnings of or that of the bank. As a result, banks, including the
bank, face a significant challenge to maintain acceptable net interest margins.

         Our Executive Officers
         ----------------------

         The following table sets forth certain information with respect to our
executive officers:

<TABLE>
<CAPTION>

                                                                Positions and Offices with Four Oaks Fincorp,
                                              Year first        Inc. and business experience
      Name                       Age          employed          during past five (5) years
      ----                       ---          --------          --------------------------

<S>                              <C>          <C>               <C>
      Ayden R. Lee, Jr.          52           1980              Chief Executive Officer, President and
                                                                Director of Four Oaks Fincorp, Inc. and Four
                                                                Oaks Bank & Trust Company

      Clifton L. Painter         51           1986              Senior Executive Vice President, Chief
                                                                Operating Officer of Four Oaks Fincorp, Inc.
                                                                and Four Oaks Bank & Trust Company

      Nancy S. Wise              45           1991              Senior Vice President, Chief Financial Officer
                                                                of Four Oaks Fincorp, Inc. and Four Oaks Bank
                                                                & Trust Company

      W. Leon Hiatt, III         33           1994              Senior Vice President of Four Oaks Fincorp,
                                                                Inc. and Four Oaks Bank & Trust Company, Loan
                                                                Administrator of Four Oaks Bank & Trust
                                                                Company.  From March 1990 until joining the
                                                                bank, Mr. Hiatt served as a Financial
                                                                Institutions Examiner for the FDIC
</TABLE>

                                       7
<PAGE>

Item 2 - Properties.
--------------------

         The bank owns its main office which is located at 6144 U S 301 South,
Four Oaks, North Carolina. The main office which was constructed by the Bank in
1985 is a 12,000 square foot facility on 1.64 acres of land. The bank leases an
additional branch office in downtown Four Oaks located at 111 North Main Street
from M.S. Canaday, who is one of our directors as well as a director of the
bank. Under the terms of the lease, which the bank believes to be arms-length,
the bank paid $828 per month in rent in 2000. The lease is month-to-month and is
reviewed by the Company on an annual basis. The bank owns a 5,000 square foot
facility renovated in 1992 on 1.15 acres of land located at 5987 U S 301 South,
Four Oaks, North Carolina which houses the training center. The bank also owns a
15,000 square foot facility built in 2000 located at 6114 US 301 South, Four
Oaks, North Carolina, which houses the administrative offices, data operations,
loan operations and the bank's wide area network central link. In addition, the
bank owns the following:

<TABLE>
<CAPTION>

Location                                Year Built                    Present Function              Square Feet
--------                                ----------                    ----------------              -----------
<S>                                     <C>                           <C>                           <C>
102 East Main Street
Clayton, North Carolina                 1986                          Branch Office                 4,200

200 E. Church Street
Benson, North Carolina                  1987                          Branch Office                 2,000

128 North Second Street
Smithfield, North Carolina              1991                          Branch Office                 3,400

403 S. Bright Leaf Blvd.
Smithfield, North Carolina              1995                          Limited-Service Facility      720

200 Glen Road
Garner, North Carolina                  1996                          Branch Office                 3,600

325 N. Judd Parkway Northeast
Fuquay-Varina, North Carolina           2000                          Branch Office (modular)       2,800
</TABLE>

Item 3 - Legal Proceedings.
--------------------------

         We are not involved in any material legal proceedings at the present
time.

Item 4 - Submission of Matters to a Vote of Security Holders.
-------------------------------------------------------------

         None.

PART II

Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters.
-------------------------------------------------------------------------------

         There is no "public market" for our common stock as such term is
defined in Item 10 of Regulation S-B due to the fact that both bid and asked
quotations at fixed prices have not appeared regularly in any established
quotation system on at least half of the 60 business days prior to December 31,
2000. However, our common stock is currently traded through the market makers
listed below:

Morgan, Keegan & Company, Inc.             Legg Mason Wood Walker, Inc.
4300 Six Forks Road                        3201 Glenwood Avenue
Suite 400                                  P.O. Box 31048
Raleigh, North Carolina 27609              Raleigh, North Carolina 27622-1048
Phone: 800-688-2137                        Phone: 800-752-7834
       919-838-3410                               919-783-0040
Attention:     Harold Lee Snipes, Jr.      Attention:     J. David Stubbs
               Senior Vice President                      Assoc. Vice President

         Trades involving our common stock are negotiated on a best efforts
basis. As of December 31, 2000, the approximate number of holders of record of
our common stock was 1,000. We have no other class of equity securties.

         State banking laws require that surplus of at least 50% of paid-in
capital stock be maintained in order for the bank to declare a dividend to us.
Cash dividends paid by us in 2000 and 1999 were $0.32 and $0.29 per share,
respectively.

                                       8
<PAGE>

Item 6 - Management's Discussion and Analysis or Plan of Operation.
------------------------------------------------------------------

     The following discussion and analysis provides information about the major
components of the results of operations and financial condition, liquidity and
capital resources of Four Oaks Fincorp, Inc. (the "Company") and should be read
in conjunction with the Company's Consolidated Financial Statements and Notes
thereto. Additional discussion and analysis related to fiscal 2000 is contained
in the Company's Quarterly Reports on Form 10-QSB.

General

     The Company has experienced significant sustained growth in assets and
deposits over the last five years. Assets increased from $133,421,000 at
December 31, 1995 to $258,329,000 at December 31, 2000, while total deposits
increased from $118,965,000 to $216,693,000 over that same span. In addition,
for 65 consecutive years, the Company (prior to 1997, the Company's wholly owned
subsidiary, Four Oaks Bank & Trust Company [the "Bank"]), has paid dividends.
For the past five years, dividends have averaged 21% of the Company's average
net income.

     Interest rates on deposits and loans are set at competitive rates while
maintaining spreads of 3.96% and 4.25% in 2000 and 1999, respectively, between
interest earned on average loans and investments and interest paid on average
interest-bearing deposits and short-term borrowings. Gross loans have increased
from $89,888,000 at December 31, 1995 to $194,577,000 at December 31, 2000,
while average net annual chargeoffs over the last five years were $458,000. The
sustained growth provided by operations resulted in increases in total assets of
12%, 8%, and 13% for 2000, 1999, and 1998, respectively.

     Gross loans grew 17% and 7% in 2000 and 1999, respectively. Total
investments (including federal funds sold and interest bearing deposits in
banks) decreased 4% in 2000 and increased 8% in 1999. The Company closely
monitors changes in the financial markets in order to maximize the yield on its
assets. The growth in loans and investments is funded by the growth in total
deposits of 11% and 3% in 2000 and 1999 and net income of $3,117,000 in 2000 and
$3,096,000 in 1999. Net income for 2000 increased only 1% due to the cost of our
facilities expansion and organizational restructuring. Net income for 1999
increased 20% due to favorable interest margins and effective cost containment
measures.

     Management historically has monitored and controlled increases in overhead
expenses while being committed to developing the skills and enhancing the
professionalism of the Company's employees. Employee turnover has been minimal,
while the number of full-time equivalent employees has increased from 59 at
December 31, 1995 to 100 at December 31, 2000.

Results of Operations

     Interest income increased 13% in 2000, 5% in 1999, and 17% in 1998. In 2000
and 1999, loan volumes were at record levels all year with much less seasonal
fluctuation than we have had historically. This steady loan growth resulted
primarily from increased loan demand in our markets. Average gross loans were
approximately $182,874,000 in 2000, $164,862,000 in 1999 and $153,244,000 in
1998. Average investments were approximately $42,792,000 in 2000, $39,526,000 in
1999 and $35,286,000 in 1998. Market rates fluctuated as average prime rates
ranged from 8% to 9.5% during 2000, 1999 and 1998. However, growth in 2000, 1999
and 1998 interest income is primarily due to higher volumes. Interest expense
increased 26% in 2000, decreased 6% in 1999 and increased 15% in 1998. Deposit
rates increased in 2000 as competition became intense in our markets and we
opened a new office in Fuquay-Varina, North Carolina. Deposit rates declined
from 1998 to 1999 as Federal Home Loan Bank borrowings were substituted as a
funding source rather than inflating certificate of deposit rates. Noninterest
income increased 6% and 21% in 1999 and 2000, respectively, primarily due to
fees generated on loan products. While the Bank's stated service charges and
fees have not significantly increased, it's related income has risen due to
higher account volumes and increased collection efforts. Noninterest expenses
have increased from $5,914,000 in 1998 to $6,661,000 in 1999 and $7,425,000 in
2000. These increases are the result of increased operating expenses caused by
the growth of the Bank. The Bank's growth has resulted in more employees,
increased facilities and equipment costs, and an increase in the volume of
transactions.

Liquidity and Capital Resources

     The Company's liquidity position is primarily dependent upon the Bank's
need to respond to loan demand, the short-term demand for funds caused by
withdrawals from deposit accounts (other than time deposits) and the liquidity
of its assets. The Bank's primary liquidity sources include cash and amounts due
from other banks, federal funds sold, and U.S. Government Agency and other
short-term investment securities. In addition, the Bank has the ability to
borrow funds from the Federal Reserve Bank and the Federal Home Loan Bank of
Atlanta and to purchase federal funds from other financial institutions. The
Company's management believes its liquidity sources are adequate to meet its
operating needs and the operating needs of the Bank. Total shareholders' equity
was $25,348,000 or 10% of total assets at December 31, 2000 and $21,897,000 or
10% of total assets at December 31, 1999.

Inflation

     The effect of inflation on financial institutions differs somewhat from the
effect it has on other businesses. The performances of banks, with assets and
liabilities that are primarily monetary in nature, are affected more by changes
in interest rates than by inflation. Interest rates generally increase as the
rate of inflation increases, but the magnitude of the change in rates may not be
the same. During periods of high inflation, there are normally corresponding
increases in the money supply, and banks will normally experience above average
growth in assets, loans and deposits. Also, general increases in the price of
goods and services will generally result in increased operating expenses.

Income Taxes

     Income taxes, as a percentage of income before income taxes, for 2000, 1999
and 1998 were 35%, 37%, and 34%, respectively. These changes were the result of
management's redirection of funds between loans and different types of taxable
and tax exempt interest-bearing assets in response to economic conditions and
the Bank's liquidity requirements.

Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and
Interest Differential

     The following schedule presents average balance sheet information for the
years 2000 and 1999, along with related interest earned and average yields for
interest-earning assets and the interest paid and average rates for
interest-bearing liabilities.


                                       9
<PAGE>

      Average Daily Balances, Interest Income/Expense, Average Yield/Rate


<TABLE>
<CAPTION>
                                                                        2000                                  1999
                                                       ---------------------------------------------------------------------------
                                                         average      interest    average     average       interest     average
(Dollars in thousands)                                    daily       income/      yield/      daily         income/      yield/
                                                         balance      expense      rate        balance       expense      rate
                                                       ---------      -------      ------     ----------    ---------    -------
<S>                                                          <C>       <C>          <C>            <C>       <C>          <C>
ASSETS
Cash and due from banks                                 $  6,486                              $    5,807
Interest bearing bank balances                               525       $   35       6.67%          2,914     $    147     5.04%
Investments:
U.S. Treasuries and Agencies                              37,878        2,350       6.20%         34,947        2,086     5.97%
Tax exempt(1)                                              3,857          196       5.08%          3,900          200     5.13%
Other investments                                          1,057           80       7.57%            679           52     7.66%
                                                      ----------   ----------               ------------  -----------
Total investments(3)                                      42,792        2,626       6.14%         39,526        2,338     5.92%
                                                      ----------   ----------               ------------  -----------
Commercial loans                                          17,736        1,808      10.19%         21,055        2,011     9.55%
Installment loans                                         39,218        3,954      10.08%         34,957        3,440     9.84%
Real estate loans                                        113,976       11,094       9.73%         98,686        9,402     9.53%
Equity lines                                               9,756          999      10.24%          8,332          743     8.92%
Overdraft lines and credit cards                           2,188          292      13.35%          1,833          255    13.91%
                                                      ----------   ----------               ------------  -----------
   Gross loans(2)                                        182,874       18,147       9.92%        164,863       15,851     9.61%
Loan loss reserve                                         (2,508)                                 (2,108)
                                                      ----------   ----------               ------------  -----------
   Net loans                                             180,366       18,147      10.06%        162,755       15,851     9.74%
                                                      ----------   ----------               ------------  -----------
Total fixed assets                                         6,138                                   4,814
Other assets                                               4,858                                   4,437
                                                      ----------   ----------               ------------  -----------
Total assets                                          $  241,165   $   20,808       8.63%   $    220,253  $    18,336     8.32%
                                                      ==========   ==========               ============  ===========
Total interest earning assets                         $  226,191   $   20,808       9.20%   $    207,303  $    18,336     8.85%
                                                      ==========   ==========               ============  ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand                                                $   31,749                             $    30,505
NOW accounts                                              16,025    $     153        .95%         15,264   $      146      .96%
Money markets                                              7,897          312       3.95%          9,219          340     3.69%
Savings                                                   10,604          207       1.95%         11,041          216     1.96%
Time                                                     131,797        7,922       6.01%        125,278        6,657     5.31%
                                                      ----------   ----------               ------------  -----------
Total deposits                                           198,072        8,594       4.34%        191,307        7,359     3.85%
Borrowing                                                 16,812         1053       6.26%          5,584          303     5.43%
Other liabilities                                          2,731                                   2,535
                                                      ----------   ----------               ------------  -----------
Total liabilities                                        217,615        9,647       4.43%        199,426        7,662     3.84%
                                                      ----------   ----------               ------------  -----------
Common stock                                               1,883                                   1,356
Surplus                                                    6,021                                   5,982
Undivided profits                                         16,285                                  13,709
Unrealized (gain) on securities                            (639)                                   (220)
                                                      ----------                            ------------
Total equity                                              23,550                                  20,827
                                                      ----------   ----------               ------------  -----------
Total liabilities and equity                          $  241,165   $    9,647       4.00%   $    220,253  $     7,662     3.48%
                                                      ==========   ==========               ============  ===========
Total interest bearing liabilities                    $  183,135   $    9,647       5.27%   $    166,386  $     7,662     4.60%
                                                      ==========   ==========               ============  ===========
Net interest margin:
   Total assets to total liabilities and equity                                     4.63%                                 4.84%
   Interest earning assets to interest bearing
   liabilities                                                                      3.93%                                 4.25%
   Net yield on interest earning assets                            $   11,161       4.93%                 $    10,674     5.15%
                                                                   ==========                             ===========

</TABLE>

(1) Not computed on a tax equivalent basis.
(2) Includes non-accrual loans.
(3) Does not give effect to changes in fair value reflected in equity.


                                       10
<PAGE>

Changes in interest income and expense by category and rate/volume variances for
the years ended December 31, 2000 and 1999. The changes due to rate and volume
were allocated on their absolute values.

<TABLE>
<CAPTION>

                                      2000 versus 1999                    1999 versus 1998
                                      ----------------                    ----------------
                                                  amount due to                       amount due to
(in thousands)            total increase           change in:     total increase        change in:
                            (decrease)         volume      rate    (decrease)       volume     rate
                            ----------        -------    -------   ----------      -------   --------
<S>                           <C>             <C>        <C>        <C>            <C>       <C>
Income:
Loans                         $ 2,296         $ 1,723    $   573    $   758        $ 1,144   $  (386)
Investments(1)                    176              74        102        115            237      (122)
                            ----------        -------    -------   ----------      -------   --------
Total interest income           2,472           1,797        675        873          1,381      (508)
                            ----------        -------    -------   ----------      -------   --------

Expense:
NOW accounts                        8               8       --         (119)            12      (131)
Money market                      (27)            (49)        23         21             57       (36)
Savings                            (8)             (8)      --          (64)            17       (81)
Time                            1,280             341        938       (414)           247      (661)
                            ----------        -------    -------   ----------      -------   --------
Total paid on deposits          1,253             292        961       (576)           333      (909)
Borrowings                        684             610         74        114            127       (13)
                            ----------        -------    -------   ----------      -------   --------
Total interest expense          1,937             902      1,035       (462)           460      (922)
                            ----------        -------    -------   ----------      -------   --------
Net interest income           $   535         $   895    $  (360)   $ 1,335        $   921   $   414
                            ==========        =======    =======   ==========      =======   ========
</TABLE>

(1) Includes federal funds sold and interest bearing bank balances.

Investment Portfolio

The valuations of investment securities at December 31, 2000 and 1999 were (in
thousands, except ratios):

<TABLE>
<CAPTION>
                                                        Available for sale:            Available for sale:
                                                                2000                          1999
                                                      ------------------------       ------------------------
                                                      amortized     estimated        amortized     estimated
                                                         cost       fair value          cost      fair value
                                                      ---------     ----------       ---------    ----------
<S>                                                    <C>            <C>             <C>           <C>
U.S. Government agency obligations                     $38,990        $38,687         $39,915       $38,980

Securities issued by states and political
   subdivisions in the U.S.:
   Tax exempt securities                                 4,661          4,755           4,178         4,204
   Other equity securities                               1,248          1,248             696           696
                                                      ---------     ----------       ---------    ----------
Total securities                                       $44,899        $44,690         $44,789       $43,880
                                                      =========     ==========       =========    ==========
Pledged securities                                                    $14,826                       $ 8,700
                                                                    ==========                    ==========
</TABLE>


<TABLE>
<CAPTION>

                                                                                                  2000             1999
Maturity and repricing data for debt securities:                                                Weighted        Weighted
   Fixed rate debt securities with a remaining maturity of:            2000           1999    Average Yield   Average Yield
                                                                    ---------      ---------  -------------   -------------
<S>                                                                 <C>              <C>           <C>            <C>
   Less than one year                                               $   3,437        $ 1,599       6.01%          6.18%
   Over one year through five years                                    35,835         36,320       6.14%          5.86%
   Over five years                                                      4,170          5,265       6.86%          5.97%
                                                                    ---------      ---------
   Total fixed rate debt securities                                    43,442         43,184       6.23%          5.86%
                                                                    ---------      ---------
   Total debt securities                                            $  43,442        $43,184       6.23%          5.86%
                                                                    =========      =========
</TABLE>


                                       11
<PAGE>

Loan Portfolio

Loans consisted of the following, as extracted from the Call Reports of December
31, 2000 and 1999, in thousands:

<TABLE>
<CAPTION>
                                                                                 2000          1999
                                                                              ---------    ---------
<S>                                                                           <C>          <C>
Loans Receivable
   Loans secured by real estate:
   Construction and land development                                          $  35,751    $  31,464
   Secured by farmland                                                            7,576        7,252
   Secured by 1-4 family residential properties:
     Revolving, open-end loans and lines of credit                               12,394        9,134
     All other                                                                   48,589       40,277
Secured by multifamily residential properties                                     1,170        1,261
   Secured by nonfarm nonresidential properties                                  31,300       21,478
Loans to finance agricultural production and other loans to farmers               5,954        7,088
Commercial and industrial loans                                                  30,344       26,838
Loans to individuals for household, family and other personal expenditures:
   Credit cards and related plans                                                 2,354        2,039
   Other                                                                         18,120       18,767
Obligations of states and political subdivisions in the U.S.:
   Tax exempt obligations                                                           280          330
All other loans                                                                     712          834
Lease financing receivables                                                          33           46
Less: Unearned income on loans                                                      (80)        (232)
                                                                              ---------    ---------
Total loans                                                                     194,497      166,576
Allowance for loan losses                                                        (2,770)      (2,350)
                                                                              ---------    ---------
   Net loans                                                                  $ 191,727    $ 164,226
                                                                              =========    =========

Loans restructured                                                                 None         None

Commitments and contingencies
Commitments to make loans                                                     $  35,810    $  34,864
                                                                              =========    =========
Standby letters of credit                                                     $   1,473    $   1,594
                                                                              =========    =========

</TABLE>


Certain Loan Maturities

The maturities and carrying amounts of certain loans as of December 31, 2000 are
summarized as follows (in thousands):

<TABLE>
<CAPTION>

                                                          Real Estate
                                          Commercial      Construction
                                           Financial        and Land
                                          Agricultural     Development        Total
                                          ------------    ------------       --------
<S>                                        <C>              <C>              <C>
Due within one year                        $ 28,704         $ 30,133         $ 58,369
                                           --------         --------         --------
Due after one year to five years:
   Fixed rate                                33,987            3,707           37,694
   Variable rate                              8,553            1,911           10,464
                                           --------         --------         --------
                                             42,540            5,618           48,158
                                           --------         --------         --------
Due after five years:
   Fixed rate                                   294             --                294
   Variable rate                              2,846             --              2,846
                                           --------         --------         --------
                                              3,140             --              3,140
                                           --------         --------         --------

Total                                      $ 74,384         $ 35,751         $109,667
                                           ========         ========         ========
</TABLE>


                                       12
<PAGE>

Risk Elements

Past due and nonaccrual loans, in thousands, as extracted from the Call Reports
of December 31, 2000 and 1999 were as follows:

<TABLE>
<CAPTION>
                                      past due 30            past due 90
                                    through 89 days         days or more
                                   and still accruing     and still accruing            nonaccrual
                                   ------------------     ------------------         ----------------
                                     2000     1999           2000     1999             2000     1999
                                    ------   ------         ------   ------           ------   ------
<S>                                 <C>      <C>            <C>      <C>              <C>      <C>
Real estate loans                   $1,539   $  448         $  367   $  633           $1,150   $  203
Installment loans                      671      335             21      144              445       87
Credit cards and related plans         105       61             22       11             --       --
Commercial and all other loans         242       84           --         49               59       56
                                    ------   ------         ------   ------           ------   ------
Total                               $2,557   $  928         $  410   $  837           $1,654   $  346
                                    ======   ======         ======   ======           ======   ======
Agricultural loans included above   $  162   $  154         $ --     $ --             $   10   $   12
                                    ======   ======         ======   ======           ======   ======

</TABLE>

Foreclosed assets (included in other assets) were $85,000 and $501,013 at
December 31, 2000 and 1999, respectively

Allowance for Loan Losses and Summary of Loan Loss Experience

As a matter of policy, the Bank maintains an allowance for loan losses. The
allowance for loan losses is created by direct charges to income, and losses on
loans are charged against the allowance when realized. The amount of the
allowance is based upon an evaluation of the portfolio, current economic
conditions, historical loan loss experience, and other factors management deems
appropriate. The Bank's management believes its allowance for loan losses is
adequate under existing economic conditions.

The following table summarizes the Bank's loan loss experience for the years
ending December 31, 2000, 1999 and 1998:

<TABLE>
<CAPTION>
     (in thousands)                               2000        1999        1998
                                                 ------      ------      ------
<S>                                              <C>         <C>         <C>
Balance at beginning of period                   $2,350      $1,945      $1,725
Chargeoffs:
   Commercial, and other                            192         209         187
   Real estate                                       39          36         298
   Installment loans to individuals                 240         286         361
   Credit cards and related plans                    75          53          41
                                                 ------      ------      ------
                                                    546         584         887
                                                 ------      ------      ------

Recoveries:
   Commercial and other                              32          53          15
   Real estate                                       12           2          27
   Installment loans                                 97          71          68
   Credit cards and related plans                    17           6           4
                                                 ------      ------      ------
                                                    158         132         114
                                                 ------      ------      ------

Net chargeoffs                                      388         452         773
                                                 ------      ------      ------

Additions charged to operations                     808         857         993
                                                 ------      ------      ------

Balance at end of year                           $2,770      $2,350      $1,945
                                                 ======      ======      ======


Ratio of net chargeoffs during
   the year to average gross loans
   outstanding during the year                    0.212%      0.274%      0.504%
</TABLE>


                                       13
<PAGE>

Deposits

For each category of total deposits which has an average for the year in excess
of 10 percent of average total deposits, the average balance and the average
rates as of December 31, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
(in thousands, except rates)      average balance                average rate
                              -----------------------      -----------------------
                                2000           1999         2000              1999
                              --------       --------       ----              ----
<S>                           <C>            <C>            <C>               <C>
Demand                        $ 31,749       $ 30,505         --                --
Time                          $131,797       $125,278       6.01%             5.31%
</TABLE>


Time certificates in amounts of $100,000 or more outstanding at December 31,
2000 by maturity are as follows:


Three months or less                      $30,465
Over three months through twelve months    27,045
Over twelve months through three years      3,921
Over three years                            1,043
                                          -------
Total                                     $62,474
                                          =======


Borrowings

The Bank borrows funds principally from the Federal Home Loan Bank of Atlanta.
Information regarding such borrowings is as follows (in thousands, except
rates):

                                                    2000                 1999
                                                   -------             -------
Balance outstanding at December 31                 $12,990             $12,200
Weighted average rate at December 31                  5.89%               4.79%
Maximum borrowings during the year                 $23,900             $12,200
Average amounts outstanding during year            $16,812             $ 5,583
Weighted average rate during year                     5.87%               5.43%


Key Ratios

The following schedule of key ratios is presented for the years ended December
31, 2000 and 1999:

                                                  2000            1999
                                                 ------          ------
Return on average assets                          1.29%           1.41%
Return on average equity                         13.23%          14.87%
Dividend payout ratio                            21.19%          19.30%
Equity to assets (averages)                       9.77%           9.46%
Ending equity to ending assets                    9.81%           9.46%
Average interest earning assets
   to average total assets                       93.78%          94.12%
Average net loans to average total deposits      91.06%          85.08%
Average interest bearing liabilities to
   average interest earning assets               80.97%          80.26%


                                       14
<PAGE>

Competition

     Commercial banking in North Carolina is extremely competitive in large part
due to statewide branching. The Bank competes in its market areas with some of
the largest banking organizations in the state and the country and other
financial institutions, such as federally and state-chartered savings and loan
institutions and credit unions, as well as consumer finance companies, mortgage
companies and other lenders engaged in the business of extending credit. Many of
the Bank's competitors have broader geographic markets and higher lending limits
than those of the Bank and are also able to provide more services and make
greater use of media advertising. The enactment of legislation authorizing
interstate banking has caused great increases in the size and financial
resources of some of the Bank's competitors. In addition, as a result of
interstate banking, out-of-state commercial banks may acquire North Carolina
banks and heighten the competition among banks in North Carolina. Despite the
competition in its market areas, the Bank believes that it has certain
competitive advantages that distinguish it from its competition. The Bank
believes that its primary competitive advantages are its strong local identity,
its affiliation with the community and its emphasis on providing specialized
services to small and medium-sized business enterprises, as well as professional
and upper-income individuals. The Bank offers customers modern, high-tech
banking without forsaking community values, such as prompt, personal service and
friendliness. The Bank offers many personalized services and attracts and
retains customers by being responsive and sensitive to their individualized
needs. The Bank also relies on goodwill and referrals from shareholders and
satisfied customers, as well as traditional media to attract new customers. To
enhance a positive image in the community, the Bank supports and participates in
local events and its officers and directors serve on boards of local civic and
charitable organizations.

Forward Looking Information

     Information set forth in this Annual Report to Shareholders under the
caption "Management's Discussion and Analysis of Financial Conditions and
Results of Operations" contains various "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which statements
represent the Company's judgment concerning the future and are subject to risks
and uncertainties that could cause the Company's actual operating results and
financial position to differ materially. Such forward looking statements can be
identified by the use of forward looking terminology, such as "may," "will,"
"expect," "anticipate," "estimate," or "continue" or the negative thereof or
other variations thereof or comparable terminology. The Company cautions that
any such forward looking statements are further qualified by important factors
that could cause the Company's actual operating results to differ materially
from those in the forward looking statements, including without limitation, the
effects of future economic conditions, governmental fiscal and monetary
policies, legislative and regulatory changes, the risks of changes in interest
rates on the level and composition of deposits, the effects of competition from
other financial institutions, the failure of assumptions underlying the
establishment of the allowance for possible loan losses, the low trading volume
of the Common Stock and other considerations described in connection with
specific forward looking statements and other cautionary elements specified in
documents filed by the Company with the Securities and Exchange Commission such
as its Annual Report on Form 10-KSB and Quarterly Reports on Form 10-QSB.

                          Five Year Performance Index
   Based on cumulative total return as prepared by The Carson Medlin Company


[Performance chart appears here. See table below for plot points.]

                          1995  1996  1997  1998  1999  2000
Four Oaks Fincorp, Inc.   100   125   145   230   240   260
Independent Bank Index    100   125   185   200   175   175
NASDAQ Index              100   125   150   200   400   290


                                       15
<PAGE>
Item 7 - Financial Statements.
-----------------------------

REPORT OF INDEPENDENT ACCOUNTANTS

                                     [logo]
                                Dixon Odom PLLC
                  Certified Public Accountants and Consultants


The Board of Directors and Shareholders
Four Oaks Fincorp, Inc.
Four Oaks, North Carolina


We have audited the accompanying consolidated balance sheets of Four Oaks
Fincorp, Inc. and Subsidiary as of December 31, 2000 and the related
consolidated statements of operations, comprehensive income, shareholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit. The consolidated
financial statements of Four Oaks Fincorp, Inc. and Subsidiary as of December
31, 1999 were audited by other auditors whose report dated February 12, 2000
expressed an unqualified opinion on those statements.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the 2000 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Four Oaks
Fincorp, Inc. and Subsidiary as of December 31, 2000, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.


/s/ Dixon Odom PLLC

Sanford, North Carolina
February 9, 2001


                                       16
<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Shareholders
Four Oaks Fincorp, Inc.
Four Oaks, North Carolina

         In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of comprehensive income, of
shareholders' equity, and of cash flows present fairly, in all material
respects, the financial position of Four Oaks Fincorp, Inc. and subsidiary at
December 31, 1999, and the results of their operations and their cash flows for
each of the two years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed.

/s/ PricewaterhouseCoopers LLP
Raleigh, North Carolina
February 12, 2000


                                       17
<PAGE>


FINANCIAL STATEMENTS

                          CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                   December 31
                                                                        ------------------------------
ASSETS                                                                        2000             1999
                                                                        -------------    -------------
<S>                                                                     <C>              <C>
Cash and due from banks                                                 $   8,314,384    $  10,415,507
Interest-bearing deposits in banks                                          1,109,990        3,934,054
Securities available for sale                                              43,442,042       43,184,107
FHLB stock and other equity securities                                      1,247,548          695,548
Loans, net                                                                191,727,392      164,226,086
Bank premises and equipment, net                                            8,468,791        4,774,680
Other assets                                                                4,018,609        4,234,646
                                                                        -------------    -------------
          Total assets
                                                                        $ 258,328,756    $ 231,464,628
                                                                        =============    =============

LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits:
Noninterest-bearing                                                     $  35,592,665    $  31,058,592
Large denomination deposits in banks                                       61,516,833       51,345,020
Other interest-bearing                                                    119,583,593      112,306,925
                                                                        -------------    -------------
          Total deposits                                                  216,693,091      194,710,537
                                                                        -------------    -------------

Borrowed funds                                                             12,990,000       12,200,000
Other liabilities                                                           3,297,420        2,657,300
                                                                        -------------    -------------
          Total liabilities                                               232,980,511      209,567,837
                                                                        -------------    -------------

Commitments and contingencies (Note L)

Shareholders' equity:
     Common stock; $1.00 par value, 5,000,000 shares authorized;
     2,077,707 and 1,366,530 issued and outstanding at December
     31, 2000 and 1999, respectively                                        2,077,707        1,366,530
Capital surplus                                                             6,145,519        6,282,211
Retained earnings                                                          17,249,962       14,793,266
Accumulated other comprehensive loss                                         (124,943)        (545,216)
                                                                        -------------    -------------
          Total shareholders' equity                                       25,348,245       21,896,791
                                                                        -------------    -------------


          Total liabilities and shareholders' equity                    $ 258,328,756    $ 231,464,628
                                                                        =============    =============
</TABLE>


The accompanying notes are an integral part of these financial statements.


                                       18
<PAGE>

FINANCIAL STATEMENTS

                     CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                For the Years Ended December 31
                                                                -------------------------------

                                                              2000            1999            1998
                                                              ----            ----            ----
<S>                                                      <C>             <C>             <C>
Interest income:
   Loans                                                 $ 18,147,055    $ 15,850,562    $ 15,093,772
   Securities:
     Taxable U.S. Government and agency obligations         2,349,725       2,086,097       1,920,270
     Tax-exempt obligations of states and
        political subdivisions                                196,401         200,303         215,689
     Other taxable securities                                  80,441          51,937          51,673
   Overnight investments                                       34,582         146,700         181,687
                                                         ------------    ------------    ------------
          Total interest income                            20,808,204      18,335,599      17,463,091
                                                         ------------    ------------    ------------

Interest expense:
   Deposits                                                 8,594,244       7,358,675       7,934,518
   Borrowed funds                                           1,052,812         302,925         189,417
                                                         ------------    ------------    ------------
          Total interest expense                            9,647,056       7,661,600       8,123,935
                                                         ------------    ------------    ------------

          Net interest income                              11,161,148      10,673,999       9,339,156

Provision for loan losses                                     807,685         857,116         993,085
                                                         ------------    ------------    ------------
   Net interest income after provision for loan losses     10,353,463       9,816,883       8,346,071
                                                         ------------    ------------    ------------

Noninterest income:
   Service charges on deposit accounts                      1,007,408         919,812         874,870
   Other service charges, commissions &                       799,838         676,484         476,101
   fees
   Securities net gains (losses)                              (26,868)        (13,748)         48,523
   Gain on sale of loans                                       72,054         162,569          46,394
                                                         ------------    ------------    ------------
          Total noninterest income                          1,852,432       1,745,117       1,445,888
                                                         ------------    ------------    ------------

Noninterest expense:
   Salaries                                                 3,250,150       3,092,228       2,656,179
   Employee benefits                                          649,529         565,822         482,447
   Occupancy expenses                                         267,675         240,833         231,317
   Equipment expenses                                         474,859         431,380         377,550
   Other operating expense                                  2,782,844       2,330,356       2,166,346
                                                         ------------    ------------    ------------
          Total noninterest expense                         7,425,057       6,660,619       5,913,839
                                                         ------------    ------------    ------------

Income before income taxes                                  4,780,838       4,901,381       3,878,120

Provision for income taxes                                  1,664,297       1,805,000       1,300,000
                                                         ------------    ------------    ------------

          Net income                                     $  3,116,541    $  3,096,381    $  2,578,120
                                                         ============    ============    ============

Basic net income per common share                        $       1.51    $       1.52    $       1.29
                                                         ============    ============    ============

Diluted net income per common share                      $       1.50    $       1.51    $       1.28
                                                         ============    ============    ============
</TABLE>


The accompanying notes are an integral part of these financial statements.


                                       19
<PAGE>

FINANCIAL STATEMENTS

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


<TABLE>
<CAPTION>

                                                              For the Years Ended December 31
                                                           -----------------------------------------
                                                               2000           1999           1998
                                                           -----------    -----------    -----------
<S>                                                        <C>            <C>            <C>
Net Income                                                 $ 3,116,541    $ 3,096,381    $ 2,578,120
                                                           -----------    -----------    -----------

Comprehensive income (loss)

     Unrealized gain (loss) on available for sale              673,405     (1,113,631)         6,019
     securities

     Reclassification of net (gains) losses
     unrealized in
        net income                                              26,868         13,748        (48,523)
     Income tax (expense) benefit relating to unrealized
        gain (loss) on available for sale securities          (280,000)       439,800         17,501
                                                           -----------    -----------    -----------

     Other comprehensive income (loss)                         420,273       (660,083)       (25,003)
                                                           -----------    -----------    -----------
   Comprehensive income                                    $ 3,536,814    $ 2,436,298    $ 2,553,117
                                                           ===========    ===========    ===========
</TABLE>

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              For the Years Ended December 31, 2000, 1999 and 1998

<TABLE>
<CAPTION>
                                                                                                                 Accumulated
                                                                                                                    Other
                                                            Common Stock            Capital        Retained      Comprehensive
                                                        Shares       Amount         Surplus        Earnings      Income (Loss)
                                                        -------   ------------   ------------    ------------    ------------
<S>                                                     <C>       <C>            <C>             <C>             <C>
Balance, December 31,1997                               875,648   $    875,648   $  5,602,066    $ 10,249,413    $    139,870

   Net Income                                              --             --             --         2,578,120            --
   Change in net unrealized loss on securities
     available for sale                                    --             --             --              --           (25,003)
   Common stock issued pursuant to three-for-two
     stock split                                        437,824        437,824       (441,928)           --              --
   Sale of common stock                                  35,567         35,567        625,743
   Cash dividends of $.27 per share                        --             --             --          (534,084)           --
                                                        -------   ------------   ------------    ------------    ------------

Balance, December 31, 1998                            1,349,039      1,349,039      5,785,881      12,293,449         114,867

   Net Income                                              --             --             --         3,096,381            --
   Change in net unrealized loss on securities
     available for sale                                    --             --             --              --          (660,083)
   Sale of common stock                                  17,491         17,491        496,330            --              --
   Cash dividends of $.29 per share                        --             --             --          (596,564)           --
                                                        -------   ------------   ------------    ------------    ------------

Balance, December 31, 1999                            1,366,530   $  1,366,530   $  6,282,211    $ 14,793,266    $   (545,216)

   Net Income                                              --             --             --         3,116,541            --
   Change in net unrealized gain on securities
     available for sale                                    --             --             --              --           420,273
   Common stock issued pursuant to three-for-two
     stock split                                        684,702        684,702       (691,248)           --              --
   Sale of common stock                                  26,475         26,475        554,556            --              --
   Cash dividends of $.32 per share                        --             --             --          (659,845)           --
                                                        -------   ------------   ------------    ------------    ------------

Balance, December 31, 2000                            2,077,707   $  2,077,707      6,145,519      17,249,962    $   (124,943)
                                                      =========   ============      =========      ==========    ============

</TABLE>

The accompanying notes are an integral part of these financial statements.


                                       20
<PAGE>

FINANCIAL STATEMENTS

                     CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>

                                                                          2000             1999           1998
                                                                      ------------    ------------    ------------
<S>                                                                   <C>             <C>             <C>
Cash flows from operating activities:
     Net income                                                       $  3,116,541    $  3,096,381    $  2,578,120
     Adjustments to reconcile net income to net cash provided by
     operations:
        Provision for loan losses                                          807,685         857,116         993,085
        Provision for depreciation                                         428,223         358,943         347,915
        Amortization of intangible assets                                   34,092          34,092          34,092
        Deferred income tax benefit                                        (65,500)       (200,950)        (98,750)
        Net (accretion) amortization of bond premiums and discounts          1,879           3,757         (11,261)
        (Gain) on sale of loans                                            (72,054)       (162,569)        (46,394)
        (Gain) loss on sale of securities                                   26,868          13,748         (48,523)
        (Gain) loss on sale of foreclosed assets                             5,258          17,347         (41,768)
        Loss on disposition of fixed assets                                 13,343          45,376          12,939

        Changes in assets and liabilities:
          Other assets                                                    (201,729)       (198,353)        563,645
          Loans held for sale                                             (851,000)
          Interest receivable                                             (333,838)        197,956        (461,948)
          Income taxes and other liabilities                               (42,252)        140,559         191,499
          Interest payable                                                 682,372        (121,495)        230,778
                                                                      ------------    ------------    ------------
             Net cash provided by operating activities                   3,549,888       4,081,908       4,243,429
                                                                      ------------    ------------    ------------

Cash flows from investing activities:
   Proceeds from sales and calls of securities available for sale        6,113,260      15,547,179      24,874,345
   Proceeds from maturities of securities available for sale             1,592,875       2,946,125       3,808,116
   Proceeds from redemption of FHLB stock                                     --              --           407,600
   Purchase of securities available for sale                            (7,292,544)    (19,725,074)    (37,683,005)
   Purchase of FHLB stock                                                 (552,000)        (73,200)           --
   Net increase in loans                                               (27,385,937)    (11,136,542)    (16,658,583)
   Capital expenditures                                                 (4,135,677)       (348,924)       (313,343)
   Proceeds from sale of fixed assets                                         --           152,131          62,166
   Proceeds from sale of foreclosed assets                               1,098,895         378,499          89,643
   Expenditures on foreclosed assets                                      (601,140)       (725,305)           --
                                                                      ------------    ------------    ------------
             Net cash used in investing activities                     (31,162,268)    (12,985,111)    (25,413,061)
                                                                      ------------    ------------    ------------

Cash flows from financing activities:
   Net proceeds from borrowed funds                                        790,000       8,430,000         770,000
   Net increase in deposit accounts                                     21,982,554       6,285,953      20,436,647
   Proceeds from issuance of common stock                                  574,485         513,823         548,177
   Cash dividends paid                                                    (659,845)       (596,564)       (534,084)
                                                                      ------------    ------------    ------------
             Net cash provided by financing activities                  22,687,194      14,633,212      21,220,740
                                                                      ------------    ------------    ------------

             Net increase (decrease) in cash and cash equivalents       (4,925,186)      5,730,009          51,108

Cash and cash equivalents at beginning of year                          14,349,560       8,619,551       8,568,443
                                                                      ------------    ------------    ------------
Cash and cash equivalents at end of year                              $  9,424,374    $ 14,349,560    $  8,619,551
                                                                      ============    ============    ============
</TABLE>


The accompanying notes are an integral part of these financial statements.


                                       21
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts and transactions of
Four Oaks Fincorp, Inc. (the "Company"), a bank holding company incorporated
under the laws of the State of North Carolina, and its wholly-owned subsidiary,
Four Oaks Bank & Trust Company, Inc. (the "Bank"). All significant intercompany
transactions have been eliminated.

Nature of Operations

The Company was incorporated under the laws of the State of North Carolina on
February 5, 1997. The Company's primary function is to serve as the holding
company for its wholly-owned subsidiary, the Bank. The Bank operates eight
offices in eastern and central North Carolina, and its primary source of revenue
is derived from loans to customers and from its securities portfolio. The loan
portfolio is comprised mainly of real estate, commercial, consumer, and equity
line of credit loans. These loans are primarily collateralized by residential
and commercial properties, commercial equipment, and personal property.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Material estimates that are
particularly susceptible to significant change relate to the determination of
the allowance for losses on loans.

Cash and Cash Equivalents

For the purpose of presentation in the statements of cash flows, cash and cash
equivalents are defined as those amounts included in the balance sheet captions
"cash and due from banks" and "interest-bearing deposits in banks."

Significant Accounting Policies

The accounting and reporting policies of the Company follow generally accepted
accounting principles and general practices within the financial services
industry. Following is a summary of the more significant policies.

Securities

Securities are classified into three categories:

(1)  Securities Held to Maturity - Debt securities that the Company has the
     positive intent and the ability to hold to maturity are classified as
     held-to-maturity and reported at amortized cost;

(2)  Trading Securities - Debt and equity securities that are bought and held
     principally for the purpose of selling them in the near term are classified
     as trading securities and reported at fair value, with unrealized gains and
     losses included in earnings; and

(3)  Securities Available for Sale - Debt and equity securities not classified
     as either securities held to maturity or trading securities are reported at
     fair value, with unrealized gains and losses excluded from earnings and
     reported as other comprehensive income, a separate component of
     shareholders' equity.

The Company has historically classified all securities as available for sale.
Gains and losses on sales of securities, computed based on specific
identification of adjusted cost of each security, are included in income at the
time of the sale. Premiums and discounts are amortized into interest income
using the interest method over the period to maturity.

Loans and Allowance for Loan Losses

Loans are stated at the amount of unpaid principal, reduced by an allowance for
loan losses. Interest on loans is calculated by using the simple interest method
on daily balances of the principal amount outstanding.

Loan origination fees are deferred, as well as certain direct loan origination
costs. Such costs and fees are recognized as an adjustment to yield over the
contractual lives of the related loans utilizing the interest method.

The Company evaluates its loan portfolio in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for
Impairment of a Loan", as amended by SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosure". Under these
standards, a loan is considered impaired, based on current information and
events, if it is probable that the Company will be unable to collect the
scheduled payments of principal and interest when due according to the
contractual terms of the loan agreement. Uncollateralized loans are measured for
impairment based on the present value of expected future cash flows discounted
at the historical effective interest rate, while all collateral-dependent loans
are measured for impairment based on the fair value of the collateral.


                                       22
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to earnings. Loans are
charged against the allowance for loan losses when management believes that the
uncollectibility of a loan balance is confirmed. The provision for loan losses
is based upon such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans, and
current economic conditions and trends that may affect the borrowers' ability to
pay. Because these factors may change, it is possible that managementis
assessment of the allowance may change. In addition, regulatory examiners may
require the Bank to recognize changes to the allowance for loan losses based on
their judgements about information available to them at the time of their
examination.

Income Recognition on Impaired and Nonaccrual Loans

Loans, including impaired loans, are generally classified as nonaccrual if they
are past due as to maturity or payment of principal or interest for a period of
more than 90 days, unless such loans are well-secured and in the process of
collection. If a loan or a portion of a loan is classified as doubtful or is
partially charged-off, the loan is generally classified as nonaccrual. Loans
that are on a current payment status or past due less than 90 days may also be
classified as nonaccrual if repayment in full of principal and/or interest is in
doubt.

Loans may be returned to accrual status when all principal and interest amounts
contractually due (including arrearages) are reasonably assured of repayment
within an acceptable period of time and there is a sustained period of repayment
performance (generally a minimum of six months) by the borrower, in accordance
with the contractual terms.

While a loan is classified as nonaccrual and the future collectibility of the
recorded loan balance is doubtful, collections of interest and principal are
generally applied as a reduction to the principal outstanding, except in the
case of loans with scheduled amortizations where the payment is generally
applied to the oldest payment due. When the future collectibility of the
recorded loan balance is expected, interest income may be recognized on a cash
basis. In the case where a nonaccrual loan had been partially charged-off,
recognition of interest on a cash basis is limited to that which would have been
recognized on the recorded loan balance at the contractual interest rate.
Receipts in excess of that amount are recorded as recoveries to the allowance
for loan losses until prior charge-offs have been fully recovered.

Loans Held for Sale

Loans originated and intended for sale in the secondary market are carried at
the lower of cost or estimated fair value in the aggregate. Net unrealized
losses, if any, are recognized through a valuation allowance by charges to
income.

Foreclosed Assets

Assets acquired as a result of foreclosure are valued at the lower of the
recorded investment in the loan or fair value less estimated costs to sell. The
recorded investment is the sum of the outstanding principal loan balance and
foreclosure costs associated with the loan. Losses from the acquisition of
property in full or partial satisfaction of debt are treated as credit losses.
Routine holding costs, subsequent declines in value, and gains or losses on
disposition are included in other income and expense.

Bank Premises and Equipment

Bank premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method based on the estimated
useful lives of assets. Useful lives range from 5 to 10 years for furniture and
equipment and is 35 years for premises. Expenditures for repairs and maintenance
are charged to expense as incurred.

Income Taxes

Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes.
Deferred tax assets are also recognized for operating loss carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates in
effect for the year in which the temporary differences are expected to be
recovered or settled. Deferred tax assets are reduced by a valuation allowance
if it is more likely than not that the tax benefits will not be realized.


                                       23
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements

In July 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards requiring balance sheet recognition of all derivative instruments at
fair value. SFAS No. 133, was subsequently amended by SFAS No. 137 in June 1999
and by SFAS No. 138 in June 2000. The statement, as amended, specifies that
changes in the fair value of derivative instruments be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows derivative gains and losses to offset related
results on hedged items in the income statement. The statement is effective for
fiscal years beginning after June 15, 2000. The adoption of this statement on
January 1, 2001 did not materially affect the Company's financial statements.

In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 140
is a replacement of SFAS No. 125, although SFAS No. 140 carried forward most of
the provisions of SFAS No. 125 without change. SFAS No. 140 is effective for
transfers occurring after March 31, 2001 and for disclosures relating to
securitizations, retained interests and collateral received and pledged in
reverse repurchase agreements for fiscal years ending after December 15, 2000.
The new statement eliminates the prior requirement to record collateral received
under certain securities financing transactions and requires reclassification in
the balance sheet of assets pledged under certain conditions. Management
anticipates that this statement will not materially affect the Company's
financial statements.

Reclassifications

Certain items included in the 1999 and 1998 financial statements have been
reclassified to conform to the 2000 presentation. These reclassifications have
no effect on the net income or shareholders' equity previously reported.

Segment Information

During the year ended December 31, 1998, the Company adopted the provisions of
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information." The statement requires that public business enterprises report
certain information about operating segments in their annual financial
statements and in condensed financial statements of interim periods issued to
shareholders. It also requires that the public business enterprises report
related disclosures and descriptive information about products and services
provided by significant segments, geographic areas, and major customers,
differences between the measurements used in reporting segment information and
those used in the enterprise's general-purpose financial statements, and changes
in the measurement of segment amounts from period to period.

Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources, and in assessing
performance. The Company has determined that it has one significant operating
segment, the providing of general commercial financial services to customers
located in the single geographic area of Eastern North Carolina. The various
products are those generally offered by community banks, and the allocation of
resources is based on the overall performance of the institution, versus the
individual branches or products.

                                       24
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE B - SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair values of securities available for sale as of December 31, 2000
and 1999 are as follows:


<TABLE>
<CAPTION>
                                                         Gross        Gross        Estimated
                                         Amortized     Unrealized   Unrealized       Fair
                                           Cost          Gains        Losses         Value
                                        -----------   ------------  -----------   -----------
<S>                                     <C>           <C>           <C>           <C>
2000:
U.S. Government and agency securities   $38,989,628   $      --     $   303,068   $38,686,560
State and municipal securities            4,660,657        97,760         2,935     4,755,482
                                        -----------   ------------  -----------   -----------
                                        $43,650,285   $    97,760   $   306,003   $43,442,042
                                        ===========   ===========   ===========   ===========

1999:
U.S. Government and agency securities   $39,915,003   $       358   $   934,905   $38,980,456
State and municipal securities            4,177,620        47,629        21,598     4,203,651
                                        -----------   ------------  -----------   -----------
                                        $44,092,623   $    47,987   $   956,503   $43,184,107
                                        ===========   ===========   ===========   ===========
</TABLE>


The amortized cost and estimated fair value of debt securities at December 31,
2000 by contractual maturities are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.

                                                         Estimated
                                          Amortized        Fair
                                             Cost          Value
                                         -----------   -----------
Due in one year or less                  $ 3,451,352   $ 3,436,830
Due after one year through five years     36,083,959    35,835,647
Due after five years through ten years     2,346,940     2,382,263
Due after ten years                        1,768,034     1,787,302
                                         -----------   -----------
                                         $43,650,285   $43,442,042
                                         ===========   ===========

Securities with a carrying value of approximately $14.9 million and $9.0 million
at December 31, 2000 and 1999, respectively, were pledged to secure public
deposits and for other purposes required or permitted by law.

Sales of securities available for sale during 2000, 1999 and 1998 generated
realized gains of $9,540, $18,246 and $48,523, respectively, and realized losses
of $36,408 and $31,994 during 2000 and 1999, respectively. No losses were
realized during 1998.

NOTE C - LOANS AND ALLOWANCE FOR LOAN LOSSES

Major classifications of loans as of December 31, 2000 and 1999 are summarized
as follows (in thousands):

                                               2000          1999
                                            ---------    ---------
Real estate - residential and other         $ 128,353    $ 103,614
Real estate - agricultural                      7,576        7,252
Other agricultural                              5,954        7,088
Consumer loans                                 20,474       20,806
Business loans                                 30,344       26,838
Other loans                                     1,025        1,210
Loans held for sale                               851         --
                                            ---------    ---------
                                              194,577      166,808
Less:
   Unearned income and deferred loan fees         (80)        (232)
   Allowance for loan losses                   (2,770)      (2,350)
                                            ---------    ---------

                                            $ 191,727    $ 164,226
                                            =========    =========


                                       25
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE C -  LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Nonperforming assets at December 31, 2000 and 1999 consist of the following (in
thousands):

                                                2000     1999
                                               ------   ------
Loans past due ninety days or more             $  410   $  837
Nonaccrual loans                                1,654      346
Foreclosed assets (included in other assets)       85      501
                                               ------   ------
                                               $2,149   $1,684
                                               ======   ======

A summary of the allowance for loan losses for the years ended December 31,
2000, 1999 and 1998 is as follows:


                                       2000            1999           1998
                                    -----------    -----------    -----------
Balance, beginning                  $ 2,350,000    $ 1,945,000    $ 1,725,000
Provision charged against income        807,685        857,116        993,085
Recoveries of amounts charged-off       158,658        136,222        113,555
Amounts charged-off                    (546,343)      (588,338)      (886,640)
                                    -----------    -----------    -----------
Balance, ending                     $ 2,770,000    $ 2,350,000    $ 1,945,000
                                    ===========    ===========    ===========

NOTE D -  BANK PREMISES AND EQUIPMENT

Bank premises and equipment at December 31, 2000 and 1999 are as follows:

                                    2000             1999
                                ------------    ------------
Land                            $  1,863,563    $  1,043,642
Building                           5,508,708       3,180,811
Furniture and equipment            3,954,933       3,037,203
                                ------------    ------------
                                  11,327,204       7,261,656
Less accumulated depreciation     (2,858,413)     (2,486,976)
                                ------------    ------------
                                $  8,468,791    $  4,774,680
                                ============    ============


Depreciation expense for the years ended December 31, 2000, 1999 and 1998
amounted to $428,223, $358,943, and $347,915, respectively.

NOTE E - FHLB Stock and Other Equity Securities

The Company, as a member of the Federal Home Loan Bank system, is required to
maintain an investment in capital stock of the FHLB. No ready market exists for
the FHLB stock, and it has no quoted market value. The balance of FHLB stock
held at December 31, 2000 and 1999 was $1,195,000 and $643,000, respectively.

NOTE F - Deposits

At December 31, 2000, the scheduled maturities of certificates of deposit are as
follows (in thousands):

Within 1 year                 $130,510
Over 1 year through 3 years     11,540
Over 3 years                     2,986
                              --------
                              $145,036
                              ========


                                       26
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE G - BORROWED FUNDS

The Company has an established line of credit with the Federal Home Loan Bank of
Atlanta in the amount of $50,000,000. This line is secured by a blanket floating
lien covering the Company's loan portfolio of qualifying residential (1-4 units)
first mortgage loans. At December 31, 2000, the Company had advances of
$10,000,000 outstanding. The fixed interest rate on this advance was 5.75% and
it matures on July 13, 2010. At December 31, 1999, the Company had fixed rate
advances of $6,000,000 outstanding. At December 31, 2000 and 1999, the Company
also had advances of daily rate credit of $2,990,000 and $6,200,000,
respectively, at overnight rates of 6.35% and 4.55%, respectively.

NOTE H - INCOME TAXES

The components of income tax expense (benefit) for the years ended December 31,
2000, 1999 and 1998 are as follows:

                 2000           1999            1998
             -----------    -----------    -----------
Current:
   Federal   $ 1,583,497    $ 1,755,950    $ 1,273,750
   State         146,300        250,000        125,000
             -----------    -----------    -----------
               1,729,797      2,005,950      1,398,750

Deferred         (65,500)      (200,950)       (98,750)
             -----------    -----------    -----------

Total        $ 1,664,297    $ 1,805,000    $ 1,300,000
             ===========    ===========    ===========


The reconciliation of expected income tax at the statutory federal rate of 34%
with income tax expense for the years ended December 31, 2000, 1999 and 1998 is
as follows:

<TABLE>
<CAPTION>
                                               2000            1999           1998
                                            -----------    -----------    -----------
<S>                                         <C>            <C>            <C>
Expected income tax expense                 $ 1,625,500    $ 1,666,000    $ 1,320,000

Increase (decrease) in income tax expense
  resulting from:
     State taxes (net of federal benefit)       217,500        116,000         80,000
     Tax exempt income                         (105,000)       (57,800)       (73,000)
     Other, net                                 (73,703)        80,800        (27,000)
                                            -----------    -----------    -----------

        Income tax expense                  $ 1,664,297    $ 1,805,000    $ 1,300,000
                                            ===========    ===========    ===========
</TABLE>


A summary of the deferred tax assets (liabilities) at December 31, 2000 and
1999, included in other assets, is as follows:


                                         2000           1999
                                         ----           ----

Allowance for loan losses            $ 1,023,000    $   863,200
Depreciation                            (354,000)      (316,000)
Bond accretion                            (2,000)        (1,700)
Unamortized loan costs and fees           31,000         87,000
Unrealized losses on available for
sale securities                           83,300        363,300
                                     -----------    -----------

Net deferred tax asset               $   781,300    $   995,800
                                     ===========    ===========

NOTE I - EMPLOYEE BENEFIT PLAN

The Bank has a defined contribution pension plan in effect for substantially all
full-time employees. Employee benefits expense includes $155,405, $151,749 and
$165,207 in 2000, 1999 and 1998, respectively, for this plan. Contributions
under the plan are made at the discretion of the Board of Directors.

NOTE J - Stock Split

On March 20, 2000, the Company declared a three-for-two split of the Company's
common stock, effected in the form of a stock dividend paid on April 7, 2000 to
shareholders of record on March 31, 2000. The dividend was charged to capital
surplus in the aggregate amount of $684,702, the par value of the shares paid.
All per share information has been restated to reflect the dividend.


                                       27
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE K - REGULATORY RESTRICTIONS

The Bank, as a North Carolina banking corporation, may pay dividends to the
Company only out of undivided profits as determined pursuant to North Carolina
General Statutes Section 53-87. However, regulatory authorities may limit
payment of dividends by any bank when it is determined that such a limitation is
in the public interest and is necessary to ensure the financial soundness of the
bank.

Current Federal regulations require that the Bank maintain a minimum ratio of
total capital to risk weighted assets of 8%, with at least 4% being in the form
of Tier 1 capital, as defined in the regulations. In addition, the Bank must
maintain a leverage ratio of 4%. As of December 31, 2000, the Bank's capital
exceeded the current capital requirements. The Bank currently expects to
continue to exceed these minimums without altering current operations or
strategy.

The Bank is subject to various regulatory capital requirements administered by
the federal and state banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Quantitative measures
established by regulation to ensure capital adequacy require the Bank to
maintain minimum amounts and ratios, as set forth in the table below. Management
believes, as of December 31, 2000, that the Bank meets all capital adequacy
requirements to which it is subject.

As of December 31, 2000, the most recent notification from the FDIC categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized the Bank must maintain
minimum amounts and ratios, as set forth in the table below. There are no
conditions or events since that notification that management believes have
changed the Bank's category.

The Bank's actual capital amounts and ratios are also presented in the table
below (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                        To Be Well Capitalized
                                                                       For Capital     Under Prompt Corrective
                                                    Actual          Adequacy Purposes     Action Provisions
                                             ------------------     -----------------  -----------------------
                                             Amount       Ratio      Amount     Ratio     Amount       Ratio
                                             ------       -----      ------     -----     ------       -----
As of December 31, 2000:
------------------------
<S>                                          <C>          <C>       <C>         <C>       <C>          <C>
Total Capital (to Risk Weighted Assets)      $26,928      13.3%     $16,226     8.0%      $20,282      10.0%
Tier I Capital (to Risk Weighted Assets)      24,390      12.0%       8,113     4.0        12,169       6.0%
Tier I Capital (to Average Assets)            24,390       9.6%      10,148     4.0        12,686       5.0%

As of December 31, 1999:
------------------------
Total Capital (to Risk Weighted Assets)      $23,469      13.4%     $14,014     8.0%      $17,518      10.0%
Tier I Capital (to Risk Weighted Assets)      21,119      12.1%       7,007     4.0%       10,511       6.0%
Tier I Capital (to Average Assets)            21,119       9.3%       9,116     4.0%       11,395       5.0%
</TABLE>

The Company is also subject to these capital requirements. At December 31, 2000
and 1999, the Company's total capital to risk weighted assets, Tier 1 capital to
risk weighted assets and Tier 1 capital to average assets were 13.7% and 13.9%,
12.4% and 12.7%, and 10.0% and 9.8%, respectively.

NOTE L - COMMITMENTS AND CONTINGENCIES

The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit, lines of credit and
standby letters of credit. These instruments involve elements of credit risk in
excess of amounts recognized in the accompanying financial statements.

The Bank's risk of loss in the event of nonperformance by the other party to the
commitment to extend credit, line of credit or standby letter of credit is
represented by the contractual amount of these instruments. The Bank uses the
same credit policies in making commitments under such instruments as it does for
on-balance sheet instruments. The amount of collateral obtained, if any, is
based on management's credit evaluation of the borrower. Collateral held varies,
but may include accounts receivable, inventory, real estate and time deposits
with financial institutions. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.

As of December 31, 2000 and 1999, outstanding financial instruments whose
contract amounts represent credit risk were as follows:

                                       28
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                     2000           1999
                                                                     ----           ----
<S>                                                             <C>             <C>
Outstanding commitments to lend, unfunded loans and
   lines of credit                                              $ 35,810,000    $ 34,864,000
                                                                ============    ============

Standby and commercial letters of credit                        $  1,473,000    $  1,594,000
                                                                ============    ============
</TABLE>

The Bank's lending is concentrated primarily in eastern and central North
Carolina and the surrounding communities in which it operates. Credit has been
extended to certain of the Bank's customers through multiple lending
transactions.

NOTE M -  RELATED PARTY TRANSACTIONS

Loans outstanding to related parties at December 31, 2000 and 1999 were $922,000
and $811,000, respectively.

The Bank leased a building from one of its directors for $828, $806 and $800 per
month in 2000, 1999, and 1998, respectively, under an operating lease on a month
to month basis.

NOTE N -  STOCK OPTION PURCHASE PLAN

The Company has a non-qualified stock option plan (the "Plan") for certain key
employees under which it is authorized to issue options for up to 225,000 shares
of common stock. Options granted at the discretion of the Board at a price
approximating market, as determined by a committee of Board members. All options
granted subsequent to a 1997 amendment will be 100% vested one year from the
grant date and will expire after such a period as is determined by the Board at
the time of grant. Options granted prior to the amendment have ten year lives
and a five year level vesting provision.

A summary of the status of the Bank's stock options, after giving retroactive
effect to stock splits, as of December 31, 2000, 1999 and 1998, and changes
during the years ending on those dates is presented below:

<TABLE>
<CAPTION>
                                       Options                    Option Price
                                     Outstanding                    Per Share

<S>                                    <C>                              <C>
Balance December 31, 1997              37,426                     $4.80 - 11.55
   Granted                             26,550                     $14.22 - 14.78
   Exercised                          (28,051)                    $4.80 - 11.55
                                      --------
Balance December 31, 1998              35,925                     $4.80 - 14.78
   Granted                             28,043                     $19.33
   Exercised                           (4,500)                    $11.55 - 14.22
                                      --------
Balance December 31, 1999              59,468                     $4.80 - 19.33
   Granted                             28,957                     $20.67
   Exercised                           (5,451)                    $4.80-19.33
   Forfeited                           (7,223)                    $5.91-20.67
                                      --------
Balance December 31, 2000              75,751                     $4.80-20.67
                                      ========
</TABLE>


The weighted average exercise price of all outstanding options at December 31,
2000 is 17.76. There were 40,222 shares reserved for future issuance at December
31, 2000.

Additional information concerning the Company's stock options is as follows:

<TABLE>
<CAPTION>
                                                    Remaining
                              Number              Contractual       Number
                            Outstanding               Life       Exercisable
Exercise Price              at 12/31/00           at 12/31/00    at 12/31/00
--------------              -----------           -----------    -----------
<S>                            <C>                 <C>              <C>
$4.80                          1,450               1.2 years        1,450
$11.56                         3,525               6.2 years        2,115
$14.22                        18,450               1.3 years       18,450
$14.78                         2,700               1.4 years        2,700
$19.33                        22,799               2.2 years       22,799
$20.67                        26,827               3.2 years            -
                              ------                               ------
                              75,751                               47,514
                              ======                               ======
</TABLE>

On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock
Based Compensation". As permitted by SFAS No. 123, the Company has chosen to
apply APB Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25)
and related interpretations in accounting for the Plan. However, the Company is
required to disclose the pro forma effects on net income using the new fair
value based method. The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
assumptions used for grants in 2000, 1999 and 1998:


                                       29
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE N -  STOCK OPTION PURCHASE PLAN  (Continued)


<TABLE>
<CAPTION>
                                 2000                    1998              1997
                                 ----                    ----              ----
<S>                              <C>                     <C>               <C>
Dividend growth                     9%                      9%                7%
Expected volatility              15.51%                  20.26%            22.36%
Risk free interest rate           6.50%                   5.40%             5.40%
Expected life                    4 years                 4 years           4 years
</TABLE>

The weighted average fair value of options granted during 2000, 1999 and 1998
was $4.35, $4.19 and $4.76, respectively.

Had compensation cost for the Company's stock-based compensation plan, as
described above, been determined consistent with SFAS No. 123, the Company's net
income and net income per share would have been reduced to the pro forma amounts
indicated below:

<TABLE>
<CAPTION>
                                             2000          1999          1998
                                             ----          ----          ----
<S>                                      <C>           <C>            <C>
Net income:
   As reported                           $3,116,541    $3,096,381     $2,578,120
   Pro forma                              3,047,053     3,036,371      2,526,498

Net income per share - Basic:
   As reported                           $     1.51    $     1.52     $     1.29
   Pro forma                                   1.48          1.49           1.26

Net income per share - Diluted:
   As reported                           $     1.50    $     1.51     $     1.28
   Pro forma                                   1.47          1.49           1.26
</TABLE>

NOTE O - EARNINGS PER SHARE

Earnings per common share have been computed based on the following for the
years ended December 31, 2000, 1999, and 1998.

<TABLE>
<CAPTION>
                                             2000           1999       1998
                                             ----           ----       ----
<S>                                      <C>           <C>            <C>
Net income (numerator)                   $ 3,116,541  $ 3,096,381  $ 2,578,120
                                        ============  ===========  ===========

Shares for basic EPS (denominator)         2,061,966    2,033,886    1,999,745
Dilutive effect of stock options              10,028       10,181        7,384
                                         -----------  -----------  -----------
Adjusted shares for diluted EPS            2,071,994    2,044,067    2,007,129
                                        ============  ===========  ===========
</TABLE>

NOTE P - PARENT COMPANY FINANCIAL INFORMATION

Condensed financial information of Four Oaks Fincorp, Inc., the parent company,
at December 31, 2000, 1999 and 1998 and for the years ended December 31, 2000,
1999 and 1998 is presented below:

<TABLE>
<CAPTION>
                                                   2000            1999             1998
                                                   ----            ----             ----
<S>                                             <C>                     <C>          <C>
Condensed Balance Sheets
Assets:
   Cash and cash equivalents                  $   810,889     $    981,798      $   903,607
   Equity investment in subsidiary             24,391,946       20,862,424       18,561,451
   Other assets                                   145,410           52,519           78,178
                                              -----------     ------------      -----------
   Total assets                               $25,348,245     $ 21,896,741      $19,543,236
                                              ===========     ============      ===========
Liabilities and shareholders' equity:
   Shareholders' equity                       $25,348,245     $ 21,896,741      $19,543,236
                                              ===========     ============      ===========

Condensed Statements of Operations
Dividends from wholly-owned subsidiary        $         -     $    148,394      $   534,084
Interest from wholly-owned subsidiary              52,924           29,995           32,858
Equity in earnings of subsidiary                3,094,109        2,948,386        2,056,638
Miscellaneous expenses                            (30,492)         (30,394)         (45,460)
                                              -----------     ------------      -----------
Net income                                    $ 3,116,541     $  3,096,381      $ 2,578,120
                                              ===========     ============      ===========
</TABLE>

                                       30
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE P - PARENT COMPANY FINANCIAL INFORMATION (Continued)

<TABLE>
<CAPTION>
                                                            2000              1999              1998
                                                            ----              ----              ----
Condensed Statements of Cash Flows
<S>                                                       <C>              <C>              <C>
Operating Activities:
   Net income                                             $ 3,116,541      $ 3,096,381      $ 2,578,120
   Equity in undistributed earnings of subsidiary          (3,094,109)      (2,948,386)      (2,056,638)
   Amortization of deferred organization costs                 19,705           19,705           19,706
   (Increase) Decrease in other assets                       (127,686)           5,954          287,535
                                                          -----------      -----------      -----------
     Cash flows provided (used) by operating activities       (85,549)         173,654          828,723
                                                          -----------      -----------      -----------
Financing activities:
   Proceeds from issuance of common stock                     574,485          501,101          548,177
   Dividends paid                                            (659,845)        (596,564)        (534,084)
                                                          -----------      -----------      -----------
     Cash flows provided by financing activities              (85,360)         (95,463)          14,093
                                                          -----------      -----------      -----------

     Net increase (decrease) in cash and cash equivalents    (170,909)          78,191          842,816

Cash and cash equivalents, beginning of period                981,798          903,607           60,791
                                                          -----------      -----------      -----------

Cash and cash equivalents, end of period                  $   810,889      $   981,798      $   903,607
                                                          ===========      ===========      ===========
</TABLE>

NOTE Q -  FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", requires
the disclosure of estimated fair values for financial instruments. Quoted market
prices, if available, are utilized as an estimate of the fair value of financial
instruments. Because no quoted market prices exist for a significant part of the
Company's financial instruments, the fair value of such instruments has been
derived based on management's assumptions with respect to future economic
conditions, the amount and timing of future cash flows and estimated discount
rates. Different assumptions could significantly affect these estimates.
Accordingly, the net realizable value could be materially different from the
estimates presented below. In addition, the estimates are only indicative of
individual financial instruments' values and should not be considered an
indication of the fair value of the Company taken as a whole. The following
methods and assumptions were used to estimate the fair value of each class of
financial instrument:

Cash and Cash Equivalents
-------------------------

The carrying amounts of cash and cash equivalents are equal to the fair value
due to the liquid nature of the financial instruments.

Securities
----------

Fair values of securities are based on quoted market prices. If a quoted market
price is not available, fair value is estimated using quoted market prices for
similar securities.

Loans Receivable
----------------

Fair values have been estimated by type of loan: residential real estate loans,
consumer loans, and commercial and other loans. For variable-rate loans that
reprice frequently and with no significant credit risk, fair values are based on
carrying values. The fair values of fixed rate loans are estimated by
discounting the future cash flows using the current rates at which loans with
similar terms would be made to borrowers with similar credit ratings and for the
same remaining maturities. The Company has assigned no fair value to off-balance
sheet financial instruments since they are either short term in nature or
subject to immediate repricing.

FHLB Stock and Other Equity Securities
--------------------------------------

The carrying amounts of FHLB stock and other equity securities approximate fair
value.

Deposits
--------

The fair value of demand deposits, savings accounts and money market deposits is
the amount payable on demand at year-end. Fair value of certificates of deposit
is estimated by discounting the future cash flows using the current rate offered
for similar deposits with the same maturities.

                                       31
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE Q - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

Accrued Interest Receivable and Payable
The carrying amounts of accrued interest approximate fair value.

The following table presents information for financial assets and liabilities as
of December 31, 2000 and 1999 (in thousands):

<TABLE>
<CAPTION>
                                                              2000                           1999
                                                     Carrying      Estimated         Carrying      Estimated
                                                      Value       Fair Value          Value        Fair Value
                                                      -----       ----------          -----        ----------
<S>                                                <C>           <C>               <C>            <C>
Financial assets:
   Cash and cash equivalents                       $   9,424     $   9,424         $  14,350      $  14,350
   Securities available for sale                      43,442        43,442            43,184         43,184
   Residential real estate loans                     128,353       129,103           103,614        103,303
   Consumer loans                                     20,474        20,500            20,806         20,661
   Commercial and other loans                         45,760        46,017            42,388         42,305
   FHLB stock and other equity securities              1,248         1,248               695            695
   Accrued interest receivable                         2,605         2,606             2,271          2,271
                                                   ---------     ---------         ---------      ---------

     Total financial assets                        $ 251,306     $ 252,340         $ 227,308      $ 226,769
                                                   =========     =========         =========      =========

Financial liabilities:
   Federal Home Loan Bank of Atlanta advances      $  12,990     $  12,990         $  12,200      $  12,200
   Deposits:
     Certificates of deposit                         144,275       145,077           127,411        127,561
     Other                                            72,418        72,418            67,299         67,299
   Accrued interest payable                            2,706         2,706             2,024          2,024
                                                   ---------     ---------         ---------      ---------

     Total financial liabilities                   $ 232,389     $ 233,191         $ 208,934      $ 209,084
                                                   =========     =========         =========      =========
</TABLE>

NOTE R - Cash Flow Supplemental Disclosures

The following information is supplemental information regarding the cash flows
for the years ended December 31, 2000, 1999 and 1998:

<TABLE>
<CAPTION>
                                                     2000           1999          1998
                                                     ----           ----          ----
Cash paid for:
<S>                                              <C>              <C>           <C>
   Interest on deposits and borrowed funds       $8,964,684       $7,813,090    $7,925,986
   Income taxes                                   1,850,000        1,818,338     1,200,450

Summary of noncash investing and financing activities:

   Transfer from loans to foreclosed assets         349,762                      1,153,877
   Loans to facilitate the sale of
    foreclosed assets                               764,550          345,600       781,700

</TABLE>


                                       32
<PAGE>


Item 8 - Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
------------------------------------------------------------------------

         Not Applicable.

PART III

Item 9 - Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
------------------------------------------------------------------------

         Director information is incorporated by reference from Page 4, under
the heading "Election of Directors", Page 5, under the subheading "Director
Compensation" and Page 11, under the subheading "Section 16(a) Beneficial
Ownership Reporting Compliance," in our Proxy Statement for the Annual Meeting
of Shareholders to be held April 23, 2001. Information on our executive officers
is included under the caption "Our Executive Officers" on Page 7 of this report.

Item 10 - Executive Compensation.
---------------------------------

         This information is incorporated by reference from Pages 8-11, under
the heading "Executive Compensation," in our Proxy Statement for the Annual
Meeting of Shareholders to be held April 23, 2001.

Item 11 - Security Ownership of Certain Beneficial Owners and Management.
------------------------------------------------------------------------

         This information is incorporated by reference from Pages 2-3, under the
heading "Security Ownership of Management and Certain Beneficial Owners," in our
Proxy Statement for the Annual Meeting of Shareholders to be held April 23,
2001.

Item 12 - Certain Relationships and Related Transactions.
--------------------------------------------------------

         This information is incorporated by reference from Page 11, under the
subheading "Certain Transactions," in our Proxy Statement for the Annual Meeting
of Shareholders to be held April 23, 2001.

Item 13 - Exhibits and Reports on Form 8-K.
-------------------------------------------

(a)      Exhibits. The following exhibits are filed as part of this annual
         report. Management contracts or compensatory plans or arrangements are
         listed in Exhibits 10.1, 10.2, 10.3, 10.4 and 10.6 below:

         Exhibit No.       Description of Exhibit
         -----------       ----------------------

         2(1)              Agreement and Plan of Reorganization and Merger by
                           and between Four Oaks Bank & Trust Company and Four
                           Oaks Fincorp, Inc. dated February 24, 1997

         3.1(1)            Articles of Incorporation of Four Oaks Fincorp, Inc.

         3.2(1)            Bylaws of Four Oaks Fincorp, Inc.

         4(1)              Specimen of certificate for Four Oaks Fincorp, Inc.
                           Common Stock

         10.1(2)           Employment Agreement with Ayden R. Lee, Jr.


                                       33
<PAGE>

         10.2(2)           Severance Compensation Agreement with Ayden R. Lee,
                           Jr.

         10.3(1)           Nonqualified Stock Option Plan

         10.4(1)           Employee Stock Purchase and Bonus Plan

         10.5(1)           Dividend Reinvestment and Stock Purchase Plan

         10.6(3)           Four Oaks Bank & Trust Company Supplemental Executive
                           Retirement Plan

         21                Subsidiaries of Four Oaks Fincorp, Inc.

         23.1              Consent of Dixon Odom PLLC

         23.2              Consent of PricewaterhouseCoopers LLP
---------------------
(1)      Filed as an exhibit to the Form 8-K12G3 filed with the SEC on July 1,
         1997 and incorporated herein by reference.
(2)      Filed as an exhibit to the Quarterly Report on Form 10-Q for the period
         ended June 30, 1997 and incorporated herein by reference.
(3)      Filed as an exhibit to the Annual Report on Form 10-KSB for the period
         ended December 31, 1998 and incorporated herein by reference.

(b)      Reports on Form 8-K.

         No reports on Form 8-K were filed during the quarter ending December
         31, 2000.

                           Forward Looking Information

         Information set forth in this Annual Report on Form 10-KSB under the
caption "Business" and incorporated by reference herein from our Annual Report
to Shareholders contains various "forward looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which statements represent our
judgment concerning the future and are subject to risks and uncertainties that
could cause our actual operating results and financial position to differ
materially. Such forward looking statements can be identified by the use of
forward looking terminology, such as "may," "will," "expect," "anticipate,"
"estimate," or "continue" or the negative thereof or other variations thereof or
comparable terminology.

         We caution that any such forward looking statements are further
qualified by important factors that could cause our actual operating results to
differ materially from those in the forward looking statements, including,
without limitation, the effects of future economic conditions, governmental
fiscal and monetary policies, legislative and regulatory changes, the risks of
changes in interest rates on the level and composition of deposits, the effects
of competition from other financial institutions, the failure of assumptions
underlying the establishment of the allowance for possible loan losses, the low
trading volume of our common stock, other considerations described in connection
with specific forward looking statements and other cautionary elements specified
in documents incorporated by reference in this Annual Report on Form 10-KSB.

                                       34
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                       FOUR OAKS FINCORP, INC.

Date:  March 18, 2001                  By:          /s/ Ayden R. Lee, Jr.
                                           -------------------------------------
                                           Ayden R. Lee, Jr.
                                           President and Chief Executive Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Date:  March 18, 2001                               /s/ Ayden R. Lee, Jr.
                                           -------------------------------------
                                           Ayden R. Lee, Jr.
                                           President, Chief Executive Officer
                                           and Director

Date:  March 18, 2001                               /s/ Nancy S. Wise
                                           -------------------------------------
                                           Nancy S. Wise
                                           Senior Vice President and Chief
                                           Financial Officer

Date:  March 18, 2001                               /s/ William J. Edwards
                                           -------------------------------------
                                           William J. Edwards
                                           Director

Date:  March 18, 2001                               /s/ William L. Grimes
                                           -------------------------------------
                                           Warren L. Grimes
                                           Director

Date:  March 18, 2001                               /s/ R. Max Raynor, Jr.
                                           -------------------------------------
                                           Dr. R. Max Raynor, Jr.
                                           Director

Date:  March 18, 2001                               /s/ Percy Y. Lee
                                           -------------------------------------
                                           Percy Y. Lee
                                           Director

Date:  March 18, 2001                               /s/ Merwin S. Canaday
                                           -------------------------------------
                                           Merwin S. Canaday
                                           Director

Date:  March 18, 2001                               /s/ Paula C. Bowman
                                           -------------------------------------
                                           Paula C. Bowman
                                           Director


                                       35
<PAGE>

                                  EXHIBIT INDEX

         Exhibit No.       Description of Exhibit
         -----------       ----------------------

         2(1)              Agreement  and Plan of  Reorganization  and Merger by
                           and between Four Oaks Bank & Trust Company and Four
                           Oaks Fincorp, Inc. dated February 24, 1997
         3.1(1)            Articles of Incorporation of Four Oaks Fincorp, Inc.
         3.2(1)            Bylaws of Four Oaks Fincorp, Inc.
         4(1)              Specimen of certificate for Four Oaks Fincorp, Inc.
                           Common Stock
         10.1(2)           Employment Agreement with Ayden R. Lee, Jr.
         10.2(2)           Severance Compensation Agreement with Ayden R. Lee,
                           Jr.
         10.3(1)           Nonqualified Stock Option Plan
         10.4(1)           Employee Stock Purchase and Bonus Plan
         10.5(1)           Dividend Reinvestment and Stock Purchase Plan
         10.6(3)           Four Oaks Bank & Trust Company Supplemental Executive
                           Retirement Plan
         21                Subsidiaries of Four Oaks Fincorp, Inc.
         23.1              Consent of Dixon Odom PLLC
         23.2              Consent of PricewaterhouseCoopers LLP
---------------------
(1)      Filed as an exhibit to the Form  8-K12G3  filed  with the SEC on July
         1, 1997 and  incorporated  herein by reference.
(2)      Filed as an exhibit to the Quarterly Report on Form 10-Q for the period
         ended June 30, 1997 and incorporated herein by reference.
(3)      Filed as an exhibit to the  Annual  Report on Form  10-KSB for the
         period  ended  December  31,  1998 and incorporated herein by
         reference.


                                       36