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                    Commission File Number 0-22787
 December 31, 1998

                             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)

                               6144 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. |_|

                                   $18,908,979
               ---------------------------------------------------
               (Issuer's revenues for its most recent fiscal year)

                                   $16,245,507
               ---------------------------------------------------
         (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, 1998)

                                    1,349,039
          (Number of shares of Common Stock, par value $1.00 per share,
                        outstanding as of March 8, 1999)

Documents Incorporated by Reference                       Where Incorporated
(1) Annual Report to Shareholders for                     Parts II and III
    Fiscal Year Ended December 31, 1998
(2) Proxy Statement for the Annual                        Part III
    Meeting of Shareholders to be held April 26, 1999


<PAGE>


PART I

Item 1 - Business.

        On February 5, 1997, Four Oaks Bank & Trust Company (the "Bank") formed
Four Oaks Fincorp, Inc. (the "Company") for the purpose of serving as a holding
company for the Bank. The Company has no significant assets other than the
capital stock of the Bank. The corporate offices of the Company and the Bank are
located at 6144 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 addition to
the main office, the Bank has an additional branch in Four Oaks and 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 and one in Benson, North Carolina
at 200 E. Church Street.

        The Bank is a community bank engaged in the general commercial banking
business in Johnston County, North Carolina which is located in Eastern North
Carolina. Johnston County is contiguous to Wake, Wayne, Wilson, Harnett, Sampson
and Nash counties.

        As of December 31, 1998, the Bank had assets of $214,376,000, net loans
outstanding of $153,438,000 and deposits of $188,425,000. The Bank has enjoyed
considerable growth over the past five years as evidenced by the 107% increase
in assets, the 131% increase in net loans outstanding, and the 109% increase in
deposits since December 31, 1993.

        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; 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 six offices located
in Four Oaks, Clayton, Smithfield, Garner and Benson, the Bank serves a major
portion of Johnston County. 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.

                                       2
<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, 1998,
the Bank employed 86 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, 1998, 1997, and 1996. 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>

                                                       1998                   1997                1996
                                                       ----                   ----                ----
                                                                 (In thousands, except ratios)

<S>                                                  <C>                    <C>                 <C>
Net Income                                           $2,578                 $2,122              $1,821
Average equity capital accounts                     $18,314                $15,495             $13,580
Ratio of net income to average equity
   capital accounts                                  14.08%                 13.69%              13.41%
Average daily total deposits                       $180,763               $154,397            $129,775
Ratio of net income to average daily
   total deposits                                     1.43%                  1.37%               1.40%
Average daily loans                                $153,244               $130,376            $103,559
Ratio of average daily loans to average
   daily total deposits                              84.78%                 84.44%              79.80%

</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 the Company 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 the
Company's or the Bank's business. Supervision, regulation and examination of the
Company and the Bank by bank regulatory agencies is intended primarily for the
protection of the Bank's depositors rather than holders of the Common Stock of
the Company.

        Holding Company Regulation

        GENERAL. The Company is a holding company registered with the Federal
Reserve under the Bank Holding Company Act of 1956 (the "BHCA"). As such, the
Company and the Bank are subject to the supervision, examination and reporting
requirements contained in the BHCA and the regulation of the Federal Reserve.
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.

                                       3
<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, acquiring or servicing loans,
leasing 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 the Company, 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.

        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
years, and the requirement that the bank holding company, prior to, or following
the proposed acquisition, controls no more than 10% of the total amount of
deposits of insured depository institutions in the U.S. and no more than 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's
opt-in law, North Carolina law permits unrestricted interstate DE NOVO
branching.

        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.

        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, the Company is
registered with and subject to supervision by the North Carolina Commissioner of
Banks (the "Commissioner").

        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. At


                                       4
<PAGE>

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
internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels without
significant reliance on intangible assets. Furthermore, the guidelines indicate
that the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board") 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 the Company of any specific minimum Leverage
Ratio or tangible Tier 1 Leverage Ratio applicable to it.

        As of December 31, 1998, the Company had Tier 1 risk-adjusted, total
regulatory capital and leverage capital of approximately 11.7%, 12.9% and 9.0%,
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 Commissioner and the Federal Reserve. The Federal
Reserve and the Commissioner 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 Commissioner 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 $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.

        Although the Company is not subject to any direct legal or regulatory
restrictions on dividends (other than the requirements under the North Carolina
corporation laws that a distribution may not be made, if after giving it effect,
the Company would not be able to pay its debts as they become due in the usual
course of business or the Company's total assets would be less than its
liabilities), the Company's 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 the Company is subject to statutory and regulatory restrictions on the
payment of cash

                                       5
<PAGE>

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. Federal bank regulatory agencies also have the
general authority to limit the dividends paid by insured banks and bank holding
companies if such payment is deemed to constitute an unsafe and unsound
practice.

        Like the Company, the Bank is required by federal regulations to
maintain certain minimum capital levels. The levels required of the Bank are the
same as required for the Corporation. At December 31, 1998, the Bank had Tier 1
risk-adjusted, total regulatory capital and leverage capital of approximately
11.2%, 12.3% and 8.6%, respectively, all in excess of the minimum requirements.

        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 is based on whether the institution is
considered "well capitalized," "adequately capitalized" or "under capitalized,"
as such terms are defined in the applicable federal regulations, and whether the
institution is considered by its supervisory agency to be financially sound or
to have supervisory concerns. The FDIC also is authorized to impose one or more
special assessments in any 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
at the rate of .013%. Effective January 1, 1999, the SAIF and the BIF insurance
funds were merged.

        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. 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.

        Monetary Policy and Economic Controls

        The Company 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 the
business and earnings of the Bank or the Company. As a result, banks, including
the Bank, are facing a significant challenge to maintain acceptable net interest
margins.

                                       6
<PAGE>

        Executive Officers of the Company.

        The following table sets forth certain information with respect to the
executive officers of the Company:

<TABLE>
<CAPTION>

                                                                 POSITIONS AND OFFICES WITH COMPANY
                                                 YEAR FIRST      AND BUSINESS EXPERIENCE
     NAME                              AGE       EMPLOYED        DURING PAST FIVE YEARS
     ----                              ---       --------        ----------------------------------
<S>                                    <C>       <C>             <C>
     Ayden R. Lee, Jr.                 50        1980            Chief Executive Officer, President
                                                                 and Director of the Company and the
                                                                 Bank

     Clifton L. Painter                49        1986            Senior Executive Vice President,
                                                                 Chief Operating Officer of the
                                                                 Company and the Bank

     Nancy S. Wise                     43        1991            Senior Vice President, Chief
                                                                 Financial Officer of the Company
                                                                 and the Bank

     W. Leon Hiatt, III                31        1994            Senior Vice President of the
                                                                 Company and the Bank, Loan
                                                                 Administrator of the Bank.  From
                                                                 March 1990 until joining the Bank,
                                                                 Mr. Hiatt served as a Financial
                                                                 Institutions Examiner for the FDIC
</TABLE>

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, a director of the Company and the Bank. Under the terms of
the lease, which the Bank believes to be arms-length, the Bank paid $793 per
month in rent in 1998. The term of the lease is currently six years beginning
January 1, 1994 with annual increases based on the Consumer Price Index. 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 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             1986                     Branch Office           4,200
Clayton, North Carolina

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

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

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

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

</TABLE>

                                       7
<PAGE>


Item 3 - Legal Proceedings.

        The Company is 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.

        This information is incorporated by reference from Page 43, "Corporate
Information" of the Company's 1998 Annual Report to Shareholders included as
Exhibit 13.1.

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

        This information is incorporated by reference from Pages 13-20,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," of the Company's 1998 Annual Report to Shareholders included as
Exhibit 13.1.

Item 7 - Financial Statements.

        This information is incorporated by reference from Pages 21-37, of the
Company's 1998 Annual Report to Shareholders included as Exhibit 13.1.

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

        None.


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 Pages 5 and 6,
"Election of Directors" and Pages 9 and 10, "Section 16(a) Beneficial Ownership
Reporting Compliance," in the Company's Proxy Statement for the Annual Meeting
of Shareholders to be held April 26, 1999. Information on the Company's
executive officers is included under the caption "Executive Officers of the
Company" on Page 7 of this report.

Item 10 - Executive Compensation.

        This information is incorporated by reference from Pages 7-10,
"Executive Compensation," in the Company's Proxy Statement for the Annual
Meeting of Shareholders to be held April 26, 1999.

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

        This information is incorporated by reference from Pages 3 and 4,
"Security Ownership of Management and Certain Beneficial Owners," in the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held
April 26, 1999.


                                       8
<PAGE>

Item 12 - Certain Relationships and Related Transactions.

        This information is incorporated by reference from Page 9, "Executive
Compensation-Certain Transactions," in the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held April 26, 1999.

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

(a)     Financial Statements and Schedules.

        The following financial statements are incorporated by reference herein
        from the Company's 1998 Annual Report to Shareholders included as
        Exhibit 13.1 to this Form 10-KSB.

                                                                   1998 ANNUAL
                                                                   REPORT PAGE
                                                                   -----------

        (i)    Report of Independent Accountants.                      21

        (ii)   Consolidated Balance Sheets, December 31, 1998          22
               and 1997.

        (iii)  Consolidated Statements of Operations for the
               years ended December 31, 1998, 1997 and 1996.           23

        (iv)   Consolidated Changes in Shareholders' Equity for
               the years ended December 31, 1998, 1997 and 1996.       24

        (v)    Consolidated Statements of Cash Flows for the
               years ended December 31, 1998, 1997 and 1996.           25

        (vi)   Notes to Consolidated Financial Statements.            26-37

(b)     Reports on Form 8-K. No reports on Form 8-K were filed during the
        quarter ending December 31, 1998.

(c)     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:

<TABLE>
<CAPTION>

        EXHIBIT NO.   DESCRIPTION OF EXHIBIT
        -----------   -----------------------
        <S>           <C>
        2(1)          Agreement  and Plan of  Reorganization  and  Merger by and  between  the Bank and the  Company
                      dated February 24, 1997
        3.1(1)        Articles of Incorporation of the Company
        3.2(1)        Bylaws of the Company
        4(1)          Specimen of certificate for Company's 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          Four Oaks Bank and Trust Company Supplemental Executive Retirement Plan


                                       9
<PAGE>


        13            Portions of the Annual  Report to  Shareholders  for the fiscal year ended  December 31, 1998,
                      which are incorporated herein by reference.
        21            Subsidiaries of the Company
        23            Consent of PricewaterhouseCoopers LLP
        27            Financial Data Schedule
</TABLE>

---------------------
(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.


                                       10
<PAGE>

                           FORWARD LOOKING INFORMATION

        Information set forth in this Annual Report on Form 10-KSB under the
caption "Business" and incorporated by reference herein from the Company's
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 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,
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.


                                       11
<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.

<TABLE>
<CAPTION>
<S>                                 <C>
Date:  March 25, 1999               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 25, 1999                              /s/ Ayden R. Lee, Jr.
                                            -------------------------------------------
                                                   Ayden R. Lee, Jr.
                                                   President, Chief Executive Officer
                                                   and Director

Date:  March 25, 1999                              /s/ Nancy S. Wise
                                            -------------------------------------------
                                                   Nancy S. Wise
                                                   Senior Vice President and Chief Financial
                                                   Officer

Date:  March 25, 1999                              /s/ William J. Edwards
                                            --------------------------------------------------
                                                   William J. Edwards
                                                   Director

Date:  March 25, 1999                              /s/ Warren L. Grimes
                                            -------------------------------------------
                                                   Warren L. Grimes
                                                   Director

Date:  March 25, 1999                              /s/ Harold J. Sturdivant
                                            --------------------------------------------------
                                                   Harold J. Sturdivant
                                                   Director

Date:  March 25, 1999                              /s/ Percy Y. Lee
                                            -------------------------------------------
                                                   Percy Y. Lee
                                                   Director

Date:  March 25, 1999                              /s/ Merwin S. Canaday
                                            -------------------------------------------
                                                   Merwin S. Canaday
                                                   Director

Date:  March 25, 1999                             
                                            -------------------------------------------
                                                   Paula C. Bowman
                                                   Director
</TABLE>

<PAGE>


                                  EXHIBIT INDEX
<TABLE>
<CAPTION>

        EXHIBIT NO.   DESCRIPTION OF EXHIBIT
        -----------   ----------------------
        <S>           <C>
        2(1)          Agreement  and Plan of  Reorganization  and  Merger by and  between  the Bank and the  Company
                      dated February 24, 1997
        3.1(1)        Articles of Incorporation of the Company
        3.2(1)        Bylaws of the Company
        4(1)          Specimen of certificate for Company's 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          Four Oaks Bank and Trust Company Supplemental Executive Retirement Plan
        13            Portions of the Annual  Report to  Shareholders  for the fiscal year ended  December 31, 1998,
                      which are incorporated herein by reference.
        21            Subsidiaries of the Company
        23            Consent of PricewaterhouseCoopers LLP
        27            Financial Data Schedule
</TABLE>

---------------------
(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.