<PAGE>
 
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   FORM 10-K



   [_]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D ) OF THE SECURITIES
        EXCHANGE ACT OF 1934

   For the Fiscal Year Ended December 31, 1996

   [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 ( D) OF THE SECURITIES
        EXCHANGE ACT OF 1934

   For the transition period from _____________________ to ___________________

   Commission File Number 0-10443

                          UNITED FINANCIAL GROUP, INC.
             (Exact Name of Registrant as specified in its Charter)

            DELAWARE                                     74-2029669
   (State or other jurisdiction          (I.R.S. Employer Identification Number)
   of incorporation or organization)

5847 SAN FELIPE, SUITE 2600                                77057
      HOUSTON, TEXAS                                     (Zip Code)
(Address of principal executive offices)


      Registrant's telephone number, including area code:  (713)  267-3781

          Securities registered pursuant to Section 12(b) of the Act:

                                      NONE

          Securities registered pursuant to Section 12(g) of the Act:

                        COMMON STOCK, WITHOUT PAR VALUE

   Indicate by check mark whether the registrant (1) has filed all reports
   required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
   1934 during the preceding 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.   [_]

   Indicate by check mark if disclosure of delinquent filers pursuant to Item
   405 of Regulation S-K is not contained herein, and will not be contained, to
   the best of Registrant's knowledge, in definitive proxy or information
   statements incorporated by reference in Part III of this Form 10-K or any
   amendment to this Form 10-K.  [_]

   State the aggregate market value of the voting stock held by nonaffiliates of
   the Registrant (based on the bid price in the over-the-counter market) as of
   March 31, 1997:  $ 0.

   Indicate the number of shares outstanding of the Registrant's Common Stock,
   as of March 31, 1997:   8,073,620
   =============================================================================
<PAGE>
 
                          UNITED FINANCIAL GROUP, INC.
                                   FORM 10-K
                      FOR THE YEAR ENDED DECEMBER 31, 1996

                               TABLE OF CONTENTS
 
 
<TABLE> 
<CAPTION> 

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SECTION                                                                                    PAGE
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<S>             <C>                                                                         <C> 
                                    PART I
 
 Item 1.        Business                                                                     1
 Item 2.        Properties                                                                   8
 Item 3.        Legal Proceedings                                                            8
 Item 4.        Submission of Matters to a Vote of Security Holders                          8
 
                                    PART II
 
 Item 5.        Market for Registrant's Common Equity and Related Stockholder Matters        9
 Item 6.        Selected Financial Data                                                     10
 Item 7.        Management's Discussion and Analysis of Financial Condition and
                        Results of Operations                                               11
 Item 8.        Financial Statements and Supplementary Data
                        Independent Auditors' Report                                        15
                        Consolidated Financial Statements                                   16
 Item 9.        Changes in and Disagreements with Accountants on Accounting and Financial 
                        Disclosure                                                          26
 
                                     PART III
 
 Item 10.       Directors and Executive Officers of the Registrant                          26
 Item 11.       Executive Compensation                                                      28
 Item 12.       Security Ownership of Certain Beneficial Owners and Management              29
 Item 13.       Certain Relationships and Related Transactions                              30
 
                                     PART IV
 
 Item 14.       Exhibits, Financial Statement Schedules, and Reports on Form 8-K            31
                Signatures                                                                  34
 
</TABLE>
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                                    PART I
   ITEM 1.  BUSINESS

   GENERAL

   United Financial Group, Inc. (herein referred to, together with its
   subsidiaries, as "UFGI" or the "Company", unless the context otherwise
   specifies or requires) was organized under the laws of the state of Delaware.
   Its executive office is located at 5847 San Felipe, Suite 2600, Houston,
   Texas 77057. The telephone number at such executive office is (713) 267-3781.

   As set forth below, in accordance with certain agreements entered into by and
   among the Company, the Federal Deposit Insurance Corporation, the Office of
   Thrift Supervision and others (as defined below), on January 14, 1997, the
   Company filed a petition with the Delaware Bankruptcy Court seeking
   protection under Chapter 11 of the Bankruptcy Code. A Plan of Reorganization
   (the "Plan") including the Disclosure Statement, which embodied substantially
   the terms described below, was filed with the Federal Bankruptcy Court
   sitting in Delaware at the same time as the Company's petition. A preliminary
   hearing before the Delaware Bankruptcy Court was held on February 28, 1997
   for the purpose of addressing the Company's Plan and Disclosure Statement. On
   March 31, 1997, the Bankruptcy Court confirmed the Plan. For a further
   description of the Plan, see "Regulatory Settlement Agreements."

   BACKGROUND

   Until December 30, 1988, the Company was a savings and loan holding company
   owning all of the stock of United Savings Association of Texas ("USAT"), a
   Texas state-chartered savings and loan association.

   Beginning in the early 1980's, the economy of the State of Texas declined
   significantly, initially from a precipitous drop in the price of oil and,
   thereafter from a number of factors affecting most segments of the Texas
   economy. Because of this regional recession, USAT began to experience
   significant operating losses. As a result of these market conditions, by
   December 30, 1988, USAT's capital had dropped to approximately negative $309
   million, as determined by the Federal Deposit Insurance Corporation ("FDIC",
   which term, as used herein, includes its predecessor, the Federal Savings and
   Loan Insurance Corporation, "FSLIC"). Under Federal Home Loan Bank Board
   ("FHLBB") regulations, USAT's financial condition in 1988 gave the FHLBB
   statutory authority to place USAT into receivership and thereby deprive the
   Company of its principal asset.

   On December 30, 1988, USAT was placed into receivership with the FDIC acting
   as receiver for USAT. Immediately thereafter, USAT's deposit liabilities were
   assumed by, and substantially all of its assets, including all the
   subsidiaries of USAT, were transferred to, a new, federally chartered savings
   bank organized by an unaffiliated third party. No consideration was received
   by the Company as a result of the foregoing transaction. As of December 31,
   1988, therefore, the Company no longer conducted savings and loan operations
   through any subsidiary.

   As a result of the FDIC putting USAT into receivership on December 30, 1988,
   the stock of USAT owned by the Company became worthless, and the Company
   became entitled to claim a worthless stock deduction in its 1988 tax return.
   Such worthless stock deduction is treated under the Internal Revenue Code of
   1986, as amended ("IRC"), as a taxable loss (the "Tax Loss"). Based on the
   Company's review of certain rulings issued by the Internal Revenue Service
   ("IRS") in matters unrelated to the Company, the Company believes that the
   Tax Loss should be treated as a net operating loss ("NOL"). If so, the Tax
   Loss would expire at the end of the fifteenth tax year after the year in
   which it was incurred and would be in the amount of approximately $156
   million. However, pursuant to IRS policy, the Company cannot rely on rulings
   to which the Company is not a party, and the Company has not determined
   whether it will seek a ruling in its case. If the Tax Loss is not considered
   an NOL, the Tax Loss would be considered a capital loss which expired on
   December 31, 1993 without on-going value to the Company. Moreover, as set
   forth below under "Regulatory Settlement Agreements", subject to such
   settlements being effected, the Company has agreed that, except for limited
   purposes, it will not utilize the benefits arising from the Tax Loss.

   Following the loss of USAT, the Company's Board of Directors concluded that
   the interests of its stockholders and creditors would be best served by a
   reorganization of the Company involving the acquisition of a business or
   engaging in transactions that could utilize all or part of the Tax Loss while
   attempting to settle all outstanding claims against the Company. Accordingly,
   the Board of Directors determined not to liquidate but instead to seek
   alternatives for effectively utilizing the Company's assets and the Tax Loss.

                                       1
<PAGE>
 
   On January 12, 1989, however, the Company was notified by letter from counsel
   for the FDIC, that in the FDIC's view, it had a claim (the "Net Worth Claim")
   arising from the alleged breach of a claimed contractual obligation to the
   FDIC to maintain USAT's net worth at the prescribed regulatory minimum. This
   letter stated that the Company entered into a stipulation in 1983 to maintain
   the net worth of USAT at certain regulatory levels and that the Company
   failed to maintain these levels in accordance with that stipulation. The
   Company was subsequently notified by counsel for the FDIC that they believed
   damages were sustained as a result of the Company's alleged breach of its
   stipulation and that compensation would be demanded. If required to maintain
   USAT's net worth at the regulatory minimum, the FDIC's claim against the
   Company would be approximately $534 million. However, the FDIC's letter only
   stated that their damages were in excess of $100 million, and the FDIC has
   never quantified its alleged damages. The FDIC also asserted that the Company
   was obligated to USAT for approximately $14 million as a result of income tax
   refunds (the "Tax Sharing Claim") allegedly received by the Company through
   utilization in the Company's consolidated tax returns of losses generated by
   USAT's operations. As used herein, the Net Worth Claim and the Tax Sharing
   Claim are called the "FDIC Claims".

   The FDIC's asserted Net Worth Claim against the Company arises from the 1983
   merger of the Company with First American Financial of Texas, Inc. (formerly
   Houston First Financial Group, Inc. and referred to herein as "First
   American"). See "Other Transactions". During this transaction, the Federal
   Home Loan Bank Board issued Resolution No. 83-252 purporting to require the
   Company to "stipulate" that "for so long as it controls" USAT, the Company
   will "cause the net worth of [USAT] to be maintained at a level consistent
   with that required by" FDIC regulations. In 1994, the Office of Thrift
   Supervision ("OTS") presented the Company with a copy of a letter which
   purports to make such stipulation. However, despite such letter, the Company
   denies any obligation to maintain USAT's net worth. In addition, among other
   things, even if such obligation existed, the Company believes that the FDIC
   has no authority to enforce such obligation, or alternatively, that such
   obligation no longer applies or has been fully satisfied. In 1989, the
   Company notified counsel to the FDIC that it intended to contest this
   disputed claim. See "Regulatory Settlement Agreements".

   The Tax Sharing Claim relates to the alleged receipt by the Company of tax
   refunds from prior utilization of tax benefits incurred while the Company and
   USAT were members of a consolidated group for tax purposes. The Company
   denies that it was obligated to USAT for the Tax Sharing Claim.

   During 1989, the Company endeavored to acquire an operating company or to
   engage in other profitable transactions. The Company reviewed proposed
   alternatives for the utilization of its assets and Tax Loss. The Company
   retained tax counsel to assist in formulating business plans and procedures
   for the utilization of these assets and employed, on a best efforts basis, a
   national investment banking firm, to assist the Company in identifying
   operating businesses which were available for acquisition. However, as a
   result of the Company's limited assets, the existence of the FDIC Claims, and
   the limitations placed by the IRC upon any acquisition by, or of, the Company
   while maintaining the benefits of the Tax Loss, the Company was not in a
   position to complete any such acquisition and no discussions were held with
   any of the companies identified.

   The FDIC's Claims constituted a substantial contingent liability to the
   Company and severely hindered the Company's ability to raise capital, to
   successfully consummate the acquisition of an operating business, or to
   engage in other profitable business transactions. Therefore, beginning in
   1989, the Company initiated negotiations with the FDIC legal staff and its
   outside counsel to reach a settlement of the FDIC Claims. A tentative
   settlement was reached in October 1989. The settlement was subject, however,
   to further FDIC approval. During 1990, the Company made numerous attempts to
   obtain final approval of the proposed settlement with the FDIC. In December
   1990, however, the FDIC informed the Company that, at that time, the FDIC was
   terminating negotiations and did not intend to approve the previously
   proposed settlement or to pursue settlement of the FDIC Claims with the
   Company.

   During the first half of 1991, the Company invested substantially all of its
   assets in high quality investments consistent with the Company's
   representations to the Securities and Exchange Commission, as described
   below. See "Other Transactions". In mid-1991 the Company and the FDIC
   reopened settlement negotiations as the Company sought to resolve the FDIC
   Claims as well as all other possible claims by the FDIC against the Company.
   Such negotiations continued through the end of 1991. In November 1991, the
   FDIC notified the Company that it would be unable to reach a settlement
   resolving all claims against the Company prior to December 30, 1991.
   Therefore, the FDIC requested that the Company enter into an agreement (the
   "Tolling Agreement") to toll the running of the statute of limitations and
   certain other equitable defenses for the period commencing on November 22,
   1991 and ending on the earlier of July 31, 1992 or 15 days after the FDIC
   provided written notice of the FDIC's intention to terminate the agreement
   (the "forbearance period"). At the 

                                       2
<PAGE>
 
   same time as the Company executed the initial Tolling Agreement, the FDIC
   informed the Company that certain current and former officers, directors and
   employees of the Company and USAT and others who had engaged in business
   transactions with the Company and USAT (collectively, the "Possible Targets")
   were the subject of an investigation which might lead to the FDIC bringing a
   lawsuit against some or all of the Possible Targets. The FDIC informed the
   Company, however, that the FDIC had not determined whether or not a lawsuit
   should be brought, and, therefore, the FDIC requested that along with the
   Company, these Possible Targets also enter into similar tolling agreements.
   All Possible Targets executed tolling agreements prior to December 30, 1991.
   Under the Tolling Agreement, the Company and the Possible Targets denied the
   merits of any potential claim alleged by the FDIC but agreed that it would be
   beneficial to delay final litigation decisions to allow, among other things,
   an opportunity for dialogue, analysis, negotiation and possible settlement of
   all potential claims. The Company, the Possible Targets and the FDIC
   thereafter entered into subsequent amendments to the Tolling Agreement which
   extended the forbearance period to December 31, 1995.

   In February 1992, counsel for the FDIC notified the Company and the Possible
   Targets that, in such counsel's opinion, the Company and the Possible Targets
   were liable to the FDIC for breach of their fiduciary duty towards USAT, for
   aiding and abetting others in the breach of duties to USAT, for wrongfully
   causing USAT to pay dividends to the Company, for wrongfully failing to
   maintain the net worth of USAT, and for failing to remit tax refunds to USAT.
   In addition, counsel for the FDIC enumerated certain acts and omissions
   which, in their opinion, may have created liability to the FDIC. Such acts
   and omissions include, but, according to counsel for the FDIC, may not be
   limited to, the FDIC Claims, activities in connection with the acquisition
   and disposition of certain equity securities, high yield bonds and mortgage-
   backed securities and derivative products, the making of certain loans, the
   disposition of certain assets, and the establishment of certain reserves for
   USAT (collectively, the "FDIC Allegations").

   As set forth below, the Company has entered into agreements with the FDIC and
   the Office of Thrift Supervision ("OTS") seeking to resolve the FDIC Claims
   and the OTS Claims, defined below, raised by these two agencies, which, among
   other things, extends the Tolling Agreement as it relates to the Company,
   until such settlement is effected or the settlement agreement is terminated.
   See "Regulatory Settlement Agreements". However, in August 1995, one of the
   Possible Targets refused to extend the Tolling Agreement as it related to
   him, and, thereafter, the FDIC brought an action in the Federal District
   Court in Texas alleging certain matters against such Possible Target. The
   Company is not a party to such action. In December 1995, all other Possible
   Targets refused to enter into any extension of the FDIC's Tolling Agreement.
   While the FDIC has notified certain Possible Targets that it has no intention
   of commencing an action against them, the FDIC has made no similar
   representation to other Possible Targets. However, with the expiration of the
   Tolling Agreement, it is possible that, other than the Possible Target
   already the object of the FDIC litigation, the FDIC will be prevented from
   bringing any regulatory or other action against any Possible Target as a
   result of the running and expiration of the statute of limitations. The
   Company cannot predict whether or not the FDIC will attempt to bring any
   regulatory or other action against any of the Possible Targets, other than
   the Possible Target already the object of the FDIC litigation, and, if
   brought, the outcome of any such action.

   At the time of the initial Tolling Agreement, a number of the Possible
   Targets demanded that the Company indemnify them to the extent permitted by
   the Company's Bylaws for all expenses, including attorneys' fees, which they
   might incur. The Company did not conclude that indemnification would be
   appropriate, but agreed, in accordance with its Bylaws, Delaware law, and
   other contractual obligations with the Possible Targets, to advance legal
   expenses under certain circumstances to those Possible Targets who entered
   into stipulations agreeing to reimburse the Company for such expenses to the
   extent such persons are ultimately found not entitled to indemnification.
   However, as set forth below, in accordance with the proposed regulatory
   settlements with the FDIC and the OTS, the Company agreed to discontinue
   making any indemnification payment on behalf of the Possible Targets,
   including the advancement of legal fees. The Company cannot predict what
   actions any of such Possible Targets may take as a result of the Company's
   decision. However, in connection with the Company's bankruptcy proceeding,
   described below, all parties were to file a proof of claim by March 18, 1997.
   One of the Possible Targets filed a proof of claim. See "Regulatory
   Settlement Agreements".

   During much of 1993-1996, the Company, for itself, and in conjunction with
   the Possible Targets, continued negotiations with the FDIC concerning the
   possible settlement of the FDIC Claims and the FDIC Allegations. In mid-1994,
   settlement discussions relating to the FDIC Claims were joined by the OTS
   which was investigating the possibility of certain regulatory violations (the
   "OTS Claims") by the Company, its current and former officers and directors,
   and certain of the Possible Targets. The Company denied any such violations
   and, in September 1994, began negotiations with the OTS concerning possible
   settlement of the 

                                       3
<PAGE>
 
   OTS Claims. The Company and certain other of the Possible Targets entered
   into agreements (the "OTS Tolling Agreements") pursuant to which the OTS
   would have additional time to allege certain regulatory violations and seek
   regulatory enforcement.

   In November 1992, Nu-West Florida, Inc. ("Nu-West"), as the holder of the
   Company's Series B Preferred Stock, filed an involuntary petition (the "Nu-
   West Petition") against the Company in the Federal Bankruptcy Court for the
   State of Delaware, pursuant to Chapter 11 of the Bankruptcy Code. In
   connection with the proposed resolution of the FDIC claim and the OTS Claims,
   the Nu-West Petition was dismissed in 1996. See "Regulatory Settlement
   Agreement."

   As set forth below under "Regulatory Settlement Agreements", the Company has
   entered into a series of stipulations and consents relating to the possible
   settlement of the OTS Claims. In December 1995, the OTS brought an
   administrative action (the "OTS Action") against certain of the Possible
   Targets, other persons which the OTS alleges controlled the Company and USAT,
   and certain other individuals. The OTS Action alleges breach of fiduciary
   duty, failure to maintain the net worth of USAT, excessive compensation, and
   a number of allegations relating to the conduct of USAT's mortgage-backed
   securities operations and lending practices. All parties named in the OTS
   Action have denied all of the OTS Claims, and the OTS Action is currently
   pending before an administrative law judge. The Company is not party to the
   OTS Action and has stipulated with the OTS that it would not pay for any of
   the costs or expenses of any Possible Target relating to such OTS Action.

   REGULATORY SETTLEMENT AGREEMENTS

   As a result of negotiations held among the Company, the FDIC, the OTS, First
   Trust of California, National Association, as successor trustee on behalf of
   those persons owning the Company's 9% Secured Sinking Fund Debentures (the
   "Debenture Trustee"), and Nu-West, the sole holder of the Company's Series B
   Preferred Stock, the Company has entered into a Stipulation and Consent to
   Issuance of Consent Cease and Desist Order for Affirmative Relief with the
   OTS (the "Stipulation") and a Consent Cease and Desist Order for Affirmative
   Relief (the "Consent Order"). The Company has also entered into a Settlement
   Agreement and Release with the FDIC, as manager of the FSLIC resolution fund
   and in its corporate capacity, the Debenture Trustee and Nu-West (the "FDIC
   Settlement").

   Pursuant to the Stipulation, the Company has neither admitted nor denied any
   of the OTS allegations, claims or conclusions. However, pursuant to the
   Consent Order, the Company has agreed to pay to the FDIC the sum of
   approximately $9.45 million and to proceed with a plan of reorganization or
   liquidation in the Delaware bankruptcy court. The sum due to the FDIC would
   be paid after the Delaware bankruptcy court has confirmed a final plan of
   liquidation or reorganization. The Consent Order also releases from any
   action by the OTS certain former and current officers and directors of UFGI.

   Pursuant to the FDIC Settlement, the Company has neither admitted nor denied
   the FDIC's Claims but has agreed that, conditioned upon the Company obtaining
   a final order of the Delaware bankruptcy court, the Company will pay to the
   FDIC a minimum of $9.45 million, will pay to the Debenture Trustee a minimum
   of $1.36 million, and will pay to Nu-West a minimum of $190,000. Any
   additional funds that remain available after the payment of the minimum
   amounts and the winding down of the Company's affairs will be distributed to
   the FDIC, the Debenture Trustee and Nu-West in the same ratio as the minimum
   payments. Since its original execution, the FDIC Settlement was amended on
   several occasions to extend certain dates for filing, receipt of payments,
   etc. The FDIC Settlement originally provided that such plan of bankruptcy
   must be confirmed on or before June 30, 1996 and a disclosure statement must
   be filed with the Delaware Bankruptcy Court within 60 days of the effective
   date of the FDIC Settlement. The June 30, 1996 deadline was extended by
   agreement between parties. The FDIC Settlement further provides that, with
   minimum exceptions, any expenditure by the Company in excess of $300,000 from
   and after the effective date of the FDIC Settlement is subject to FDIC and
   OTS approval. The FDIC Settlement also provides for cross and mutual releases
   among the parties as well as releases for certain officers and Directors of
   UFGI and certain other persons who are no longer officers or directors of the
   Company.

   In accordance with the FDIC Settlement, on January 14, 1997, the Company
   filed a petition with the Delaware Bankruptcy Court seeking protection under
   Chapter 11 of the Bankruptcy Code. A plan of reorganization (the "Plan")
   including a disclosure statement which embodied substantially the terms of
   the OTS Consent Order and Stipulation and the FDIC Settlement was filed along
   with the Company's petition. A preliminary hearing before the Delaware
   Bankruptcy Court was held on February 28, 1997 for the purpose of addressing
   the Company's Plan and disclosure statement. At such preliminary hearing, the
   Bankruptcy Court fixed March 26, 1997 as the date by which holders of Allowed
   Claims (as defined in the Company's disclosure 

                                       4
<PAGE>
 
   statement) and/or holders of claims that have been timely filed, are
   liquidated in amount and are not the subject of an objection filed prior to
   the Confirmation Hearing (as hereinafter defined) could vote to accept or
   reject the Company's Plan. On March 31, 1997, the Bankruptcy Court considered
   and approved the Company's request for confirmation of the Plan. The Company
   expects to distribute its assets in accordance with the Plan and take such
   further actions in order to effect a complete liquidation, dissolution and
   winding up of the Company's business.

   In accordance with both the FDIC Settlement and the OTS Consent Order, if an
   acceptable plan of reorganization or liquidation, embodying substantially the
   terms of the OTS Consent Order and Stipulation and the FDIC Settlement, is
   not obtained, the agreements become null and void. The Company has agreed, in
   connection with the entering into of the FDIC Settlement, the OTS Stipulation
   and the Consent Order, to continue tolling the statute of limitations and not
   to utilize, except in limited circumstances, any tax benefits, including
   those arising from the Tax Loss, available to it.

   Absent the successful implementation of a plan of reorganization or
   liquidation, the Company may be required to continue negotiations with the
   FDIC, OTS, Debenture Trustee, and Nu-West or be subject to administrative or
   judicial action by the regulatory agencies and such other parties.

   In view of the Company's potential obligation under the FDIC Claims, the FDIC
   Allegations and the OTS Claims, as well as the possible obligation to
   indemnify the Possible Targets for losses incurred by them, including fees
   for their counsel, the Company cannot determine the effect of such matters on
   the Company's financial position if the Regulatory Settlement Agreements
   described herein are not consummated.

   OTHER TRANSACTIONS

   Effective April 29, 1983, First American, a savings and loan holding company,
   was merged with and into the Company. Concurrent with such merger, the
   principal subsidiary of First American, Houston First American Savings
   Association ("Houston First"), was merged with and into USAT. As a result of
   the mergers 2,090,000 shares of the Company's Common Stock were issued to
   common stockholders of First American. In addition, the Company issued to an
   unaffiliated company (the "Debtholders") 100% of its Series A Preferred Stock
   (the "Series A Preferred") and two promissory notes in the principal amounts
   of $13.4 million and $9.5 million in exchange for First American preferred
   stock and notes. On June 30, 1988, the Company paid $10.7 million to the
   Debtholders in satisfaction of the two notes totaling $22.9 million, a third
   note in the amount of $16.3 million and accrued interest on the notes. In
   addition, the Series A Preferred previously held by the Debtholders, having a
   liquidation preference of $1,650,000, was surrendered and canceled. One of
   the Debtholders, PLIC, guaranteed certain promissory note obligations (the
   "22 Seller's Notes") of the Company's subsidiary, PLC Stockholding, Inc.
   ("PLC"), which obligations were incurred by a predecessor under the terms of
   a prior merger. In conjunction with the Debtholders' debt payoff and
   preferred stock retirement, described above, the Company placed $6.2 million
   into escrow to reimburse PLIC in the event that PLIC was obligated to perform
   under the guaranty. In April 1990, the 22 Sellers' Notes were repaid in full,
   thereby discharging the contingent claim of PLIC and releasing the escrowed
   funds.

   In April 1983, the Company issued 58,725 shares of its Series B $13
   Cumulative Preferred Stock (the "Series B Preferred") to Nu-West in exchange
   for certain real estate. In 1988, as a result of the Company's capital
   position, the Board of Directors of the Company determined not to make any
   further dividend or sinking fund payments for the benefit of the Series B
   Preferred. Pursuant to the terms of the Series B Preferred, from May 1, 1988
   to December 31, 1995, dividend payments of approximately $5,917,000 have
   accrued but have not been paid. In addition, sinking fund payments of
   $4,551,000 for the redemption, commencing May 1, 1989, of certain shares of
   the Series B Preferred have not been made. Any dividend not paid accumulates
   and the Company is not permitted to pay dividends on or to retire any junior
   Preferred Stock or its Common Stock until all dividend and sinking fund
   arrearages are paid. Since the Company has failed to make five dividend
   payments when due (whether consecutive or not) Nu-West is entitled, at the
   annual meeting of Stockholders, to elect one person to the Board of Directors
   of the Company. Nu-West has been entitled to elect one director of the
   Company since May 1989. However, Nu-West determined not to elect a director
   at any of the Company's Annual Meetings of Stockholders since it has been
   entitled to elect such director. The Company has no information as to whether
   Nu-West will desire to elect a representative to the Board of Directors when
   and if the Company holds its next Annual Meeting of Stockholders.

   In connection with the acquisition of First American described above, the
   Company assumed certain obligations resulting from a prior acquisition by
   Houston First, including obligations under the Company's 9% Secured Sinking
   Fund Debentures, due 1993 (the "Debentures"). In May 1989, the Company
   offered to each unaffiliated Debentureholder the opportunity to receive $250
   in cash for each $1,000 of principal amount 

                                       5
<PAGE>
 
   of outstanding Debentures. In July 1989, persons holding $1,359,000 principal
   amount of Debentures tendered such Debentures and received approximately
   $340,000 in cash.

   Pursuant to the terms of the Indenture governing the Debentures, the Company
   was required to make a sinking fund payment of approximately $1.8 million on
   August 1, 1992. The Company elected not to make such sinking fund payment,
   and, as a result, the Debenture Trustee notified the Company that it believed
   there was an event of default under the terms of the Indenture. Without
   admitting that an event of default existed, the Company negotiated an
   arrangement whereby the Debenture Trustee would not seek to accelerate the
   repayment of the Debentures and the Company would provide security for the
   payment of the required sinking fund. Such settlement was not executed prior
   to the time the Petition referred to above was filed by Nu-West. As a result
   of the filing of the Petition, the Debenture Trustee and the Company were
   unable to consummate the agreed-upon settlement proposal.

   On August 1, 1993, the full principal amount of the Debentures matured. At
   that time, the Company paid all unpaid interest but determined not to repay
   any of the principal on such Debentures. The Company has received a letter
   from counsel for the Debenture Trustee stating that an event of default, as
   defined in the Indenture, has occurred. The Company and counsel for the
   Debenture Trustee have been in negotiations since the date of maturity of the
   Debentures concerning the effect of the Petition and the FDIC Claims on the
   Debentureholders' course of action resulting from the Company's failure to
   pay the principal of the Debentures. At the time the Company determined not
   to repay any of the principal on such Debentures, it made an independent
   determination to continue to pay interest on such Debentures at the rate of
   9% and on the dates interest was payable on the Debentures prior to the
   maturity date. In January 1995, the Company was informed by the staff of the
   OTS and counsel to the FDIC that no additional interest payments should be
   made to the Debentureholders. Therefore, effective February 1, 1995, the
   Company determined to no longer pay any such interest on the Debentures. To
   date, neither the Debenture Trustee nor the Debentureholders have taken any
   action as a result of the Company's failure to pay such Debenture principal
   or interest, but there can be no assurances that such parties will continue
   to forego any such action. Should they determine to pursue their claims for
   principal repayment, the Company can make no determination as to the effects
   such action might have on the Company's operations or financial position.
   However, as set forth above under "Regulatory Settlement Agreements," the
   Company has entered into agreements with, among others, the Debenture
   Trustee, which, if effected, could provide for certain payments to the
   Debentureholders as part of a plan of reorganization or liquidation. See
   "Regulatory Settlement Agreements".

   While the Company attempted to resolve outstanding claims of creditors, as
   set forth above, the Company's assets have, since 1990, consisted primarily
   of money market accounts, treasury securities and similar investments. As a
   result of maintaining such assets, the Company could be considered an
   "investment company" required to register under the Investment Company Act of
   1940 (the "1940 Act") and would be subject to the rules and regulations of
   the 1940 Act. In May 1990, pursuant to receipt of an exemption from
   registration under the 1940 Act, the Company liquidated its previously held
   portfolio of equity securities investments. The Company's exemption from
   registration under the 1940 Act will expire on December 30, 1997. In 1991,
   the Company agreed that its securities investments would be limited to
   securities with a remaining maturity of 397 days or less and which are rated
   in one of the two highest rating categories by a nationally recognized,
   statistical rating organization, as that term is defined in Rule 2a-7(a)(10)
   of the Securities and Exchange Commission's rules. As a result of the
   limitations on the Company arising from the exemption from the 1940 Act, the
   Company is required to make investments that offer a lower return than
   otherwise might be obtainable, absent such limitations. If the Company is not
   otherwise operating outside the scope of the 1940 Act on December 30, 1997,
   it may be required to significantly alter its business operations.

   Since January 1989, in addition to negotiating with the FDIC, Nu-West and
   other Preferred Stockholders, the Company has also successfully resolved
   former employee claims exceeding $4.9 million for approximately $1.3 million;
   has concluded a cash tender offer for certain outstanding debt, thereby
   reducing its liabilities by over $1 million and has participated in the
   settlement of a major contingent claim for approximately $125,000.

   In the Company's efforts to reduce expenses, in August 1991, the Chairman of
   the Board and President of the Company resigned, and, on October 1, 1991, all
   other employees of the Company terminated their employment.


                                       6
<PAGE>

   POST-RECEIVERSHIP EVENTS
 
   On November 29, 1990, the "Comprehensive Thrift and Bank Fraud Prosecution
   and Taxpayer Recovery Act of 1990" (the "Recovery Act") as part of the "Crime
   Control Act of 1990," (the "Control Act") was enacted. The Recovery Act
   amends the Bankruptcy Code to provide that unsecured claims based on any
   commitment by a debtor to maintain the capital of an insured deposit
   institution, such as the Net Worth Claim, are given a priority over all other
   non-priority claims of the debtor. The Recovery Act also provides that, in
   any case under Chapter 11 of the Bankruptcy Code, the bankruptcy trustee
   shall be deemed to have assumed, and shall immediately cure any deficit under
   any net worth maintenance obligation of the debtor to the FDIC. The Recovery
   Act further provides that a bankruptcy proceeding under Chapter 11 of the
   Bankruptcy Code will not discharge a debtor from "malicious or reckless
   failure" to fulfill any net worth maintenance obligation unless such
   obligation would otherwise be terminated by action of the FDIC.

   The Recovery Act prohibits financial institutions from prepaying salary or
   any "liability or legal expense" of, among others, directors and officers
   when done in anticipation of, or after, a financial institution's insolvency
   if such payments are made for the purpose of frustrating the proper payment
   of creditors or preferring one creditor over another. The term "liability or
   legal expense" includes any legal or professional expense, any settlement
   amounts and costs, and any judgment or penalty amount and costs imposed in
   connection with any claim, proceeding or action.

   The Recovery Act also gives the FDIC the power to restrict, by order or
   regulation, in certain circumstances a financial institution from making an
   indemnification payment to, among others, any officer or director. The
   restriction on indemnification payments is not dependent on the financial
   institution's insolvency or troubled financial condition. To date, no
   regulations have been adopted by the FDIC.

   The "Federal Debt Collection Procedures Act of 1990" was also enacted as part
   of the Control Act. It provides, inter alia, that the United States may, in
   conjunction with the complaint or any time after the filing of a civil action
   on a claim for a debt, make an application for a prejudgment remedy. These
   prejudgment remedies include the attachment of any nonexempt property in the
   possession, custody or control of the debtor.

   It is unclear whether the Company is covered by the Recovery Act. If so, the
   FDIC or the OTS may raise in any litigation concerning the Net Worth Claim an
   allegation that the Company maliciously and recklessly failed to fulfill its
   net worth obligation to USAT. Although the Company believes it has numerous
   meritorious defenses to the Net Worth Claim, there can be no assurances that
   the Company would prevail in any such litigation. If the FDIC or the OTS were
   to prevail, the Net Worth Claim would be treated as a priority claim which
   would reduce or eliminate the amount of the Company's assets available to pay
   other creditors and stockholders. In addition, if the Company were to seek
   protection under the Bankruptcy Code, or if the Petition discussed above were
   to be granted, the FDIC or the OTS might attempt to require the bankruptcy
   trustee to assume, and immediately cure, the alleged Net Worth Claim. If the
   FDIC were to be successful in any such action, the amount of the Company's
   assets available to pay its other creditors and stockholders likely would be
   completely eliminated.

   Finally, the FDIC or the OTS could seek, by means of filing a complaint, to
   establish the Company's obligations under the FDIC Claims, and, in connection
   with such complaint, seek to attach all of the Company's assets or to enjoin
   the wrongful disposition of the Company's assets. If such attachment were
   granted, the Company would be precluded from making any further payments to
   its creditors or stockholders until the FDIC Claims were resolved. For
   descriptions of the execution of a Tolling Agreement between the FDIC and the
   Company, the OTS Tolling Agreement, the petition filed by Nu-West and
   possible settlements of the FDIC Claims, the OTS Claims and possible claims
   of Debentureholders, see "Background," and "Regulatory Settlement
   Agreements".

                                       7
<PAGE>
 
   ITEM 2.  PROPERTIES

   The Company has no properties held in fee or leased which are material to the
   general nature of its business.

   ITEM 3.  LEGAL PROCEEDINGS

   There are no material pending legal proceedings, to which the Company is a
   party or of which any of its properties is subject other than those set forth
   under "Item 1. Business - Background" relating to the FDIC Claims against the
   Company and the filing of the Plan with the Delaware Bankruptcy Court by the
   Company pursuant to Chapter 11 of the Bankruptcy Code.

   ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

   The Company's Common Stock was traded in the over-the-counter market under
   the NASDAQ national market symbol UFGI.C until December 28, 1988, at which
   point the stock was no longer quoted on NASDAQ. At that time, the Company was
   informed by the National Association of Securities Dealers, Inc. that all of
   the market makers in the Company's stock had withdrawn from making a market.
   The Company's Common Stock is currently traded in the over-the-counter market
   but is not quoted on the NASDAQ system. Since January 1, 1989, the Company's
   Common Stock has been traded infrequently in the over-the-counter market
   pursuant to prices reported by the National Quotations Bureau, Inc. The
   following table sets forth last asked prices reported by such Bureau. All
   quotations represent last asked prices between dealers without retail mark-
   up, mark-down, or commission and do not reflect actual transactions.

   The approximate number of holders of the Company's Common Stock as of March
   31, 1997 is 4,621.

   The Company has paid no dividends on its Common Stock since its shares were
   distributed to the public in December 1981. The Company is prohibited from
   paying dividends on its Common Stock at any time that it is in arrears in
   paying dividends or making sinking fund payments with respect to the Series B
   Preferred Stock. The Company is currently in arrears in making such payments.
   See "Business - Other Transactions".

   On March 31, 1997, the last closing bid and asked prices per share of the
   Common Stock, as reported by National Quotation Bureau, Inc. were as follows:
   $0.001 bid and $0.04 asked.

   Neither the Series C Preferred Stock nor the Debentures are traded.
   Therefore, the Company cannot determine if there is any market value
   therefor.

                                       8
<PAGE>
 
                                    PART II

   ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
            MATTERS

   The Company's Common Stock was traded in the over-the-counter market under
   the NASDAQ national market symbol UFGI.C until December 28, 1988, at which
   point the stock was no longer quoted on NASDAQ. At that time, the Company was
   informed by the National Association of Securities Dealers, Inc. that all of
   the market makers in the Company's stock had withdrawn from making a market.
   The Company's Common Stock is currently traded in the over-the-counter market
   but is not quoted on the NASDAQ system. Since January 1, 1989, the Company's
   Common Stock has been traded infrequently in the over-the-counter market
   pursuant to prices reported by the National Quotations Bureau, Inc. The
   following table sets forth last asked prices reported by such Bureau. All
   quotations represent last asked prices between dealers without retail mark-
   up, mark-down, or commission and do not reflect actual transactions.
 
         ------------------------------------------------------
                                                 High    Low
         ------------------------------------------------------
          1994    First Quarter                  $0.04  $0.04
                  Second Quarter                  0.04   0.04
                  Third Quarter                   0.04   0.04
                  Fourth Quarter                  0.04   0.04
         ------------------------------------------------------
          1995    First Quarter                  $0.04  $0.04
                  Second Quarter                  0.04   0.04
                  Third Quarter                   0.04   0.04
                  Fourth Quarter                  0.04   0.04
         ------------------------------------------------------
          1996    First Quarter                  $0.04  $0.04
                  Second Quarter                  0.04   0.04
                  Third Quarter                   0.04   0.04
                  Fourth Quarter                  0.04   0.04
         ------------------------------------------------------

   The approximate number of holders of the Company's Common Stock as of March
   31, 1997, is 4,621.

   The Company has paid no dividends on its Common Stock since its shares were
   distributed to the public in December 1981. The Company is prohibited from
   paying dividends on its Common Stock at any time that it is in arrears in
   paying dividends or making sinking fund payments with respect to the Series B
   Preferred Stock. The Company is currently in arrears in making such payments.
   See "Business -- Other Transactions".

   On March 31, 1997, the last closing bid and asked prices per share of the
   Common Stock, as reported by National Quotation Bureau, Inc. were as follows:
   $0.00 bid and $0.04 asked.

   Neither the Series C Preferred Stock nor the Debentures are traded.
   Therefore, the Company cannot determine if there is any market value
   therefor.

                                       9
<PAGE>
 
   ITEM 6.           SELECTED FINANCIAL DATA

   The five-year selected financial data should be read in conjunction with
   "Item 7. Management's Discussion and Analysis of Financial Condition and
   Results of Operations" and the Consolidated Financial Statements and
   accompanying Notes included in Item 8.

<TABLE>
<CAPTION>
 
                                                                                     (In Thousands Except Per Share Data)
----------------------------------------------------------------------------------------------------------------------------
                                                                                     1996      1995    1994    1993    1992
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>        <C>     <C>     <C>     <C>
   FOR THE YEAR:
   Interest income                                                                  $   624     747     592     538     648
   Other income                                                                         189     175      --       4      10
   Total operating expenses                                                             662     836     861     845     953
   Interest expense                                                                     420     420     420     420     420
   Adjustment to increase liabilities as a result of reorganization                   4,078      --      --      --      --
   Loss before extraordinary item                                                    (4,347)   (334)   (689)   (750)   (613)
   Extraordinary item - reduction of Debenture 
     liabilities as a result of reorganization                                        4,326      --      --      --      --
                                                                                  
   Net loss                                                                         $   (21)   (334)   (689)   (750)   (613)
----------------------------------------------------------------------------------------------------------------------------
============================================================================================================================
 
AT YEAR END:

Total assets                                                                       $ 11,707  11,663  11,587  12,337  12,938
Notes payable and other borrowings related 
   to continuing operations                                                           1,360   4,671   4,671   4,671   4,643
Preferred stock dividends in arrears                                                    190   5,917   5,153   4,390   3,626
Redeemable preferred stock                                                           16,404  16,404  16,404  16,387  16,347
Common stockholders' deficit                                                       $(16,605)(22,311)(21,214)(19,745)(18,191)
----------------------------------------------------------------------------------------------------------------------------
============================================================================================================================

Net loss per common and common equivalent share                                    $     --   (0.14)  (0.18)  (0.19)  (0.18)
----------------------------------------------------------------------------------------------------------------------------
============================================================================================================================
</TABLE>

                                       10
<PAGE>
 
   ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS

   The following discussion provides information which management believes is
   relevant to an assessment and understanding of the Company's operations and
   financial condition. This discussion should be read in conjunction with the
   Consolidated Financial Statements and accompanying Notes included in Item 8.

   As set forth under "Item 1. -- Business," until December 30, 1988, the
   Company was a savings and loan holding company, owning all of the stock of
   USAT, a Texas state-chartered savings and loan association. On December 30,
   1988, USAT was placed into receivership by the FDIC, and substantially all of
   its assets and deposit liabilities were sold to an unaffiliated party.

   CONSTRAINTS ON OPERATIONS

   Since December 30, 1988, the Company has explored the possible reorganization
   of the Company or the acquisition of an operating company and/or entering
   into other profitable business transactions. Its efforts, however, have been
   hindered by the assertion of the FDIC Claims and FDIC Allegations against the
   Company. During 1989 and 1990, the efforts of management of the Company were
   focused on resolving the claims of the FDIC and others and preparing a
   proposed plan of reorganization (the "Prepackaged Plan") which would affect
   all of the Company's creditors and stockholders. During 1991 and 1992, the
   Company's efforts were focused on resolving the outstanding FDIC Claims. As a
   result of the objectives to resolve such claims and implement the Prepackaged
   Plan, the Company has limited its business activities since January 1989 to
   the management of financial investments. Because settlement of claims was
   expected to require prompt cash payments, it was necessary for the Company to
   maintain an unusual degree of liquidity. In addition, pursuant to an
   exemption from registration under the Investment Company Act of 1940 (the
   "1940 Act"), subsequent to May 1990, the Company's temporary investments have
   been limited to securities with a remaining maturity of 397 days or less and
   rated in one of the two highest rating categories by a nationally recognized
   statistical rating organization, as that term is defined in Rule 2a-7(a)(10)
   of the Commission's Rules. These considerations limited the maturity of
   temporary cash investments and precluded some types of investment options,
   resulting in lower rates of return than may otherwise have been possible.

   In August 1993, the principal amount of the Company's 9% Secured Sinking Fund
   Debentures due 1993 (the "Debentures") became due. The Company's Board of
   Directors determined that it would not be in the best interests of the
   Company, its creditors and stockholders to make such principal payments in
   view of the pending discussions with the FDIC relating to an overall
   settlement of the FDIC Claims and FDIC Allegations. The Company did, however,
   pay all accrued interest at that time. As a result of the Company's decision
   not to make the principal payments, the Debenture Trustee notified the
   Company that an event of default had occurred. Subsequent thereto, the
   Company and the Debenture Trustee attempted to negotiate an acceptable
   resolution to the alleged event of default, but as a result of the filing of
   the Nu-West Petition, discussed below, the Company and the Debenture Trustee
   were precluded from negotiating an acceptable settlement. At the time the
   Company determined not to repay any of the principal on such Debentures, it
   made a subsequent and independent determination to continue to pay interest
   on such Debentures at the rate of 9% and on the dates interest was payable on
   the Debentures prior to the maturity date. In January 1995, the Company was
   informed by the staff of the OTS and counsel to the FDIC that no additional
   interest payments should be made to the Debentureholders. Therefore, since
   August 1, 1994, the Company has not paid interest on the Debentures.

   In November 1992, the Company's Series B Preferred Stockholder, Nu-West,
   filed an involuntary petition (the "Nu-West Petition") against the Company
   pursuant to Chapter 11 of the Bankruptcy Code in the Bankruptcy Court for the
   State of Delaware. Such Petition claimed that Nu-West was a creditor of the
   Company and that the Company had failed to pay Nu-West amounts allegedly due.
   In connection with the proposed resolution of the FDIC claim and the OTS
   Claims, the Nu-West Petition was dismissed in 1996.

   As described under "Item 1. -- Business," in December 1995, the Company
   entered into agreements with the OTS, the FDIC, the Debenture Trustee and Nu-
   West for the possible settlement of claims against the Company (the "FDIC
   Settlement"). Under these agreements, the Company neither admits nor denies
   liability in claims by the FDIC and the OTS.

   The FDIC Settlement is conditioned upon the Company obtaining a final order
   of the Delaware Bankruptcy Court and requires that the Company pay a minimum
   of $9,450,000 to the FDIC, a minimum of $1,360,000 to the Debenture Trustee
   and a minimum of $190,000 to Nu-West. The FDIC Settlement requires that the
   Company proceed with a plan of reorganization or liquidation in the Delaware
   Bankruptcy Court, and 

                                       11
<PAGE>
 
   payments would be made after the Delaware Bankruptcy Court has confirmed a
   final plan. Under the FDIC Settlement, and with some exceptions, expenditures
   by the Company in excess of $300,000 from and after the effective date are
   subject to approval by FDIC and OTS. Any assets of the Company remaining
   after the payments and expenditures described above must be paid to the FDIC,
   the Debenture Trustee and Nu-West in proportion to the minimum settlement
   payments. The FDIC Settlement also provides that the Company may not, except
   in limited circumstances, utilize the benefits of tax losses carried forward
   from 1988 and prior years.

   On January 14, 1997, the Company filed a petition with the Delaware
   Bankruptcy Court seeking protection under Chapter 11 of the Bankruptcy Code.
   A Plan of Reorganization (the "Plan") including a disclosure statement which
   embodied substantially the terms of the FDIC Settlement was filed along with
   the Company's petition. The Plan was confirmed by the Bankruptcy Court on
   March 31, 1997. The liabilities and commitments of the Company have been
   adjusted to the amounts specified in that Plan.

   While the Company, the FDIC, the OTS, and others have been negotiating the
   terms of a possible settlement of claims against the Company, there is no
   assurance that the Company will be able to consummate such a settlement, nor
   can the Company determine when, if ever, any settlement will be effected.

   FINANCIAL CONDITION

   At December 31, 1996, cash, cash equivalents and short-term investments made
   up 98% of the Company's assets. At the end of 1995, such assets made up 95%
   of the total. The $8.6 million total for short-term investments at December
   31, 1996 represents a managed investments account available for immediate
   withdrawals. Short-term investments at December 31, 1995 included
   certificates of deposit and U.S. Treasury Bills, as well as the same managed
   investments account. Other investments at December 31, 1996 represent
   mortgage-backed securities. At December 31, 1995, the Company's other earning
   assets included the same mortgage-backed securities, as well as bonds and
   notes receivable which were repaid or redeemed in 1996.

   The Company's significant liabilities at December 31, 1996 and 1995 included
   the Debentures and amounts accrued for contingencies, as discussed in Notes 5
   and 6 of Notes to Consolidated Financial Statements, included herein. While
   the Company continued to make interest payments when due on the Debentures
   through 1994, the Company failed to make a required sinking fund payment in
   August 1992 and the final principal payment due in August 1993, as discussed
   above and under "Item 1. -- Business" and in Notes 5 and 7 to the
   Consolidated Financial Statements, included herein. The Company did not make
   interest payments in 1996 or 1995.

   The outstanding principal amount of the Debentures was $4,671,000 at December
   31, 1996, and interest payable of $1,015,000 had been accrued at that date.
   At year end, the liability for the Debentures was adjusted to $1,360,000 and
   the accrued interest payable on the Debentures was written off to reflect the
   payment proposed in the Plan. These adjustments were made to reflect the
   terms of the Plan of Reorganization discussed above and in Note 5 to the
   Consolidated Financial Statements. The net effect of the adjustments relating
   to the Debentures -- a gain of approximately $4,326,000 -- is reported as an
   extraordinary item in the Consolidated Statement of Operations for 1996.

   The accrual for contingent liabilities was adjusted to $10,200,000 at the end
   of 1996 to reflect the amounts expected to be paid to the FDIC and OTS, as
   discussed under "Item 1. -- Business" and in Note 6 to the Consolidated
   Financial Statements. The amount of such adjustment -- approximately
   $4,078,000 -- is reported as a separate expense item in the Consolidated
   Statement of Operations for 1996.

   At December 31, 1996, the Company's preferred stock obligations included
   $6,680,000 accrued for cumulative dividends in arrears on the Company's
   Series B $13 Cumulative Preferred Stock. At the end of 1996, the amount for
   such accrued dividends in arrears was adjusted to $190,000 to reflect the
   payment proposed in the Plan described above. The adjustment of accrued
   dividends was recorded as a reduction in the Company's retained deficit, but
   does not represent an amount available to other preferred or common
   shareholders.

   RESULTS OF OPERATIONS

   Interest income and investment income (loss)

   Interest income for the year ended December 31, 1996 was $624,000, compared
   to $747,000 in 1995 and $592,000 in 1994. Most of the Company's interest
   income has been from temporary investments in certificates of deposit,
   banker's acceptances, commercial paper, U.S. Treasury securities and other
   government agency obligations. The decrease in interest income in 1996 is
   attributable primarily to lower interest yields 

                                       12
<PAGE>
 
   on the Company's short-term investment balances. Average amounts invested
   short-term were slightly higher in 1996 than during 1995, but the average
   yield on those investments was approximately 5.4%, compared to nearly 6.0% in
   1995. The increase in interest income from 1994 to 1995 was the result of a
   significant increase in yields for short-term investments. Amounts invested
   short-term in 1995 were slightly lower than in 1994, but yields increased
   from an average 4.2% in 1994 to nearly 6.0% during 1995.

   Other income

   In August 1996, the Company sold all the stock of Southwest Group Agency,
   Inc. ("SWGA"), a wholly-owned subsidiary, for $210,000, to an unrelated third
   party. SWGA had no operations and no significant assets or liabilities at the
   time of the sale, but its Texas license as an insurance agency had
   considerable franchise value. A brokers commission of $21,000 was paid in
   connection with the sale, and the net gain of $189,000 is reported as "other
   income" in 1996.

   In December 1995, the Company received full repayment for an installment note
   receivable scheduled to mature in 2002. The principal balance of the note at
   that time was approximately $1.2 million, and scheduled monthly payments on
   that note of approximately $20,000 included interest at 6.5% per annum. A
   discount related to that note had been recorded in connection with a 1983
   business combination to reflect market interest rates at that time. The
   unamortized balance of that discount, approximately $175,000, was written off
   when the note was fully repaid, and that amount was recognized as "other
   income" in 1995.

   Salaries and Related Expenses

   From January 1989 until August 1991, the Company had only four employees. In
   August 1991, the Chairman of the Board and President of the Company resigned,
   and on October 1, 1991, all other employees of the Company terminated their
   employment. As a result, no salaries or related expenses have been incurred
   by the Company since 1991.

   General and Administrative Expenses

   General and administrative expenses for the years ended December 31, 1996,
   1995 and 1994 were predominantly legal and other professional fees related to
   the negotiation of settlements of the FDIC Claims, the FDIC Allegations, the
   OTS Claims and other claims by former officers and directors of the Company
   and others. In the years ended December 31, 1996, 1995 and 1994, legal fees
   were 52%, 66% and 66% respectively, of total general and administrative
   expenses.

   Other professional services - including accounting, audit and tax services -
   represented approximately 21% of total general and administrative expenses in
   1996 and approximately 14% of that total in 1995 and 1994. As the Company had
   few employees, even prior to 1992, outside consultants have supported the
   Company's general and administrative functions since January 1, 1989. The
   Company has renewed a contract with a former employee and an accounting firm
   to provide for certain of the Company's administrative functions. Corporate
   expenses, including such items as franchise taxes and the costs of publishing
   required financial statements and other filings, represented approximately
   19% of total general and administrative expenses in 1996 and approximately
   16% of the total in 1995 and 1994.

   Interest expense

   Interest expense in the years ended December 31, 1996, 1995 and 1994 related
   to the Company's Debentures which were due in 1993, as described above.
   Though the sinking fund payments due August 1, 1992 and the principal payment
   due August 1, 1993 were not made, as described in Note 5 of Notes to
   Consolidated Financial Statements, the Company continued to accrue and pay
   interest on the full amount of outstanding Debentures through August 1, 1994.
   The Company did not make the 1995 or 1996 interest payments, but continued to
   accrue interest expense through the end of 1996. At the end of 1996, the
   accrued interest payable on the Debentures was written off to reflect the
   terms of the Plan, as discussed above.

   All other long-term debt obligations of the Company were repaid during the
   first quarter of 1990.

   LIQUIDITY AND SOURCES OF CAPITAL

   In 1996, 1995 and 1994, cash flow requirements of operations have been met
   only partially by interest income. The balance has been funded with proceeds
   from sales and maturities of investments. The adequacy of the Company's
   liquid assets to meet commitments and operating requirements cannot be
   effectively assessed at 

                                       13
<PAGE>
 
   this time due to the uncertainties faced by the Company with respect to the
   claims of the FDIC, the OTS and others. The Plan filed in connection with a
   Chapter 11 petition early in 1997 anticipates that all the Company's assets
   will be liquidated in order to make payments to creditors and claimants.

   The uncertainties surrounding the claims of the FDIC, the OTS and others, as
   well as the limitations placed by the Internal Revenue Code on future
   utilization of tax benefits, discussed under "Item 1. -- Business --
   Background," have had the effect of precluding any attempt by management to
   seek additional debt or equity capital for the Company.

   ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------
                                                                          Page
--------------------------------------------------------------------------------
UNITED FINANCIAL GROUP, INC.
 
CONSOLIDATED FINANCIAL STATEMENTS
  Independent Auditors' Report                                               15

  Consolidated Statements of Financial Condition as of December 31, 1996 
    and 1995                                                                 16

  Consolidated Statements of Operations for the Years Ended December 31, 
    1996, 1995, and 1994                                                     17

  Consolidated Statements of Common Stockholders' Deficit for the Years 
    Ended December 31, 1996, 1995, and 1994                                  18

  Consolidated Statements of Cash Flows for the Years Ended December 31, 
    1996, 1995, and 1994                                                     19

  Notes to Consolidated Financial Statements                                 20
--------------------------------------------------------------------------------

                                       14
<PAGE>
 
                          INDEPENDENT AUDITORS' REPORT

   The Board of Directors and Stockholders
   United Financial Group, Inc.

   We have audited the accompanying consolidated statements of financial
   condition of United Financial Group, Inc. and subsidiaries (the "Company") as
   of December 31, 1996 and 1995, and the related consolidated statements of
   operations, common stockholders' deficit and cash flows for each of the years
   in the three-year period ended December 31, 1996. These consolidated
   financial statements are the responsibility of the Company's management. Our
   responsibility is to express an opinion on these consolidated financial
   statements based on our audits.

   We conducted our audits 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 audits provide a
   reasonable basis for our opinion.

   In our opinion, the consolidated financial statements referred to above
   present fairly, in all material respects, the financial position of United
   Financial Group, Inc. and subsidiaries as of December 31, 1996 and 1995 and
   the results of their operations and their cash flows for each of the years in
   the three-year period ended December 31, 1996, in conformity with generally
   accepted accounting principles.

   The accompanying consolidated financial statements have been prepared
   assuming that United Financial Group, Inc. will continue as a going concern.
   As discussed in Notes 1, 5, 6 and 8 to the consolidated financial statements,
   significant claims have been made against the Company by the Federal Deposit
   Insurance Corporation, the Office of Thrift Supervision and others.
   Furthermore, the Company did not make required principal payments on its 9%
   Secured Sinking Fund Debentures Due 1993. Since 1988, the Company has
   attempted to negotiate settlements with its creditors and claimants, and, in
   1995, the Company entered into agreements with certain of those creditors and
   claimants which would require payments to them, subject to bankruptcy
   proceedings and the confirmation of a plan of reorganization. On January 14,
   1997, the Company filed a petition for protection under Chapter 11 of the
   U.S. Bankruptcy Code and submitted a Plan of Reorganization specifying
   proposed payments to certain of its creditors and claimants. The Plan was
   confirmed on March 31, 1997. The Company is now operating its business as a
   debtor-in-possession. The payments outlined in that Plan of Reorganization
   exceed total assets of the Company at December 31, 1996. These matters raise
   substantial doubt about the Company's ability to continue as a going concern.


                                                           KPMG PEAT MARWICK LLP

   Houston, Texas
   February 14, 1997

                                       15
<PAGE>
 
   UNITED FINANCIAL GROUP, INC.
   CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
   DECEMBER 31, 1996 AND 1995
   (In Thousands Except Share Amounts)

   ----------------------------------------------------------
   December 31,                             1996       1995
   ----------------------------------------------------------
   Assets:
   Cash and cash equivalents              $  2,930       348
   Short-term investments                    8,557    10,741
   Loans and notes receivable                   --        19
   Other investments                            81       344
   Other assets                                139       211
   ----------------------------------------------------------
                                          $ 11,707    11,663
   ----------------------------------------------------------
   ==========================================================

   Liabilities:

   Accounts payable and accrued           $    158       739
    liabilities
   Notes payable and other borrowings        1,360     4,671
   Other liabilities                        10,200     6,243
   ----------------------------------------------------------
   Total liabilities                      $ 11,718    11,653
   ----------------------------------------------------------

   Cumulative preferred dividends in      
    arrears                               $    190     5,917 
   Redeemable preferred stock, no par       
    value; 2,000,000 shares authorized      16,404    16,404 
 
   Common stockholders' deficit
   Common stock, no par value; 12,000,000
    shares authorized; issued and
    outstanding, 8,073,620 shares at
    December 31, 1996 and 1995, net of
    115,750 shares in treasury              56,289    56,289
   Retained deficit                        (72,894)  (78,600)
   ----------------------------------------------------------
   Total common stockholders' deficit      (16,605)  (22,311)
   ----------------------------------------------------------
                                          $ 11,707    11,663
   ----------------------------------------------------------
   ==========================================================

   See accompanying notes to consolidated financial statements.

                                       16
<PAGE>
 
UNITED FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(In Thousands Except Per Share Data)

---------------------------------------------------------------------
Year Ended December 31,                       1996     1995     1994
---------------------------------------------------------------------
Interest income                           $    624      747      592
Other income                                   189      175       --
---------------------------------------------------------------------
                                               813      922      592
 
General and administrative expenses            662      836      861
Interest expense                               420      420      420
Adjustment of liabilities as a result        
 of reorganization                           4,078       --       -- 
---------------------------------------------------------------------
                                             5,160    1,256    1,281
---------------------------------------------------------------------
Net loss before extraordinary item          (4,347)    (334)    (689)
Extraordinary item -- reduction of
 Debenture liabilities as a result of        
 reorganization                              4,326       --       -- 
---------------------------------------------------------------------
Net loss                                  $    (21)    (334)    (689)
---------------------------------------------------------------------
 
 
Net loss to common shares after
 adjustment for preferred stock           
 dividends and accretion of discount      $    (21)  (1,097)  (1,469) 
 
 
Net loss per common and common
 equivalent share before extraordinary        
 item                                        (0.54)   (0.14)   (0.18) 
Extraordinary item                            0.54       --       --
---------------------------------------------------------------------
Net loss                                  $     --    (0.14)   (0.18)
---------------------------------------------------------------------
=====================================================================

   See accompanying notes to consolidated financial statements.

                                       17
<PAGE>
 
UNITED FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF COMMON
STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In Thousands)
 
--------------------------------------------------------------------------
                                                                Total 
                                                                Common 
                                                                Stock-
                                             Common  Retained   holders' 
                                             Stock   Deficit    Deficit  
--------------------------------------------------------------------------
Balances at December 31, 1993             $  56,289   (76,034)  (19,745)
--------------------------------------------------------------------------
Net loss                                         --      (689)     (689)
Accumulated dividends on Series B $13            
 cumulative preferred stock                      --      (763)     (763) 
Accretion of redeemable preferred stock          
 to redemption value                             --       (17)      (17) 
--------------------------------------------------------------------------
Balances at December 31, 1994             $  56,289   (77,503)  (21,214)
Net loss                                         --      (334)     (334)
Accumulated dividends on Series B $13
 cumulative preferred stock                      --      (763)     (763)
Accretion of redeemable preferred stock
 to redemption value                             --        --        --
--------------------------------------------------------------------------
Balances at December 31, 1995             $  56,289   (78,600)  (22,311)
--------------------------------------------------------------------------
Net loss                                         --       (21)      (21)
Reversal of accumulated dividends on
 Series B $13 cumulative preferred stock         --     5,727     5,727
--------------------------------------------------------------------------
Balances at December 31, 1996             $  56,289   (72,894)  (16,605)
--------------------------------------------------------------------------
==========================================================================

   See accompanying notes to consolidated financial statements.

                                       18
<PAGE>
 
UNITED FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(In Thousands)

------------------------------------------------------------------------ 
Year Ended December 31,                        1996      1995      1994
------------------------------------------------------------------------
Operating Activities:

Net loss                                  $     (21)     (334)     (689)
Adjustments to reconcile net loss to
 net cash provided by (used in)
 operating activities:
 Depreciation and amortization                   --      (223)      (48)
 Effects of adjustments to liabilities
  as a result of reorganization                (248)       --        --
Changes in assets and liabilities
 related to operations:                                    --
 Decrease (increase) in other assets             72       (93)       27
 Increase (decrease) in accounts                
      payable and accrued liabilities           435       428       (41) 
------------------------------------------------------------------------
Net cash provided by (used in)            
 operating activities                     $     238      (222)     (751) 
------------------------------------------------------------------------
Investing Activities:
Sales and maturities of short-term           
 investments                                 43,612    39,585    61,706 
Purchase of short-term investments          (41,428)  (40,664)  (61,085)
Repayments of notes receivable and               
 other investments                              282     1,398       183 
------------------------------------------------------------------------
Net cash provided by investing            
 activities                               $   2,466       319       804 
------------------------------------------------------------------------
Financing Activities:

Payments to settle claims and liquidate         
 obligations                                   (122)      (18)      (21) 
------------------------------------------------------------------------
Net cash used in financing activities     $    (122)      (18)      (21)
------------------------------------------------------------------------
Increase in cash and cash equivalents         2,582        79        32
Cash and cash equivalents, beginning of         
 year                                           348       269       237 
------------------------------------------------------------------------
Cash and cash equivalents, end of year    $   2,930       348       269
------------------------------------------------------------------------
========================================================================

   See accompanying notes to consolidated financial statements.

                                       19
<PAGE>
 
   UNITED FINANCIAL GROUP, INC.
   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   DECEMBER 31, 1996, 1995 AND 1994

   1.  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       Principles of consolidation and presentation

   The consolidated financial statements include the accounts of United
   Financial Group, Inc. and its subsidiaries ("UFGI" or the "Company"), all of
   which are wholly-owned and none of which are actively engaged in business
   operations. Prior to December 30, 1988, UFGI was in the business of offering
   products and services in the mortgage lending and savings industries and was
   engaged in an array of investment activities, primarily through its most
   significant subsidiary, United Savings Association of Texas ("USAT"), and
   USAT's wholly-owned subsidiaries. On December 30, 1988, USAT was placed into
   receivership by the Federal Savings and Loan Insurance Corporation (as
   predecessor to the Federal Deposit Insurance Corporation, both of which are
   herein referred to as the "FDIC"), and the Company's net liabilities related
   to its investment in USAT were written off at that time. Since 1988, the
   Company's business activities have been limited to the resolution of
   outstanding claims against the Company and the management of investments.

   On January 14, 1997, the Company filed for protection under Chapter 11 of the
   U.S. Bankruptcy Code. The Plan of Reorganization (the "Plan") submitted with
   that filing implements the provisions of the FDIC Settlement (described in
   Note 6), which specifies amounts to be paid to certain of the Company's
   creditors and claimants. The Plan was confirmed by the Bankruptcy Court on
   March 31, 1997. The liabilities and commitments of the Company have been
   adjusted to the amounts specified in the Plan.

   All material intercompany transactions are eliminated in consolidation.
   Certain reclassifications have been made to the 1995 and 1994 consolidated
   financial statements to conform to the presentation used for 1996.

       Investments

   The Company's investments, including certificates of deposit, government and
   government agency obligations, corporate obligations, mortgage-backed
   securities, and notes receivable are reported on the basis of amortized cost
   -- purchase or acquisition price, adjusted for the amortization of any
   related premium or discount. Because such investments are primarily short-
   term, their amortized cost approximates fair value. Effective January 1,
   1994, the Company adopted Statement of Financial Accounting Standards No.
   115, Accounting for Certain Investments in Debt and Equity Securities, which
   requires that investments in debt and equity securities be classified as
   "Held to Maturity," "Available for Sale," or "Trading" securities. Held to
   Maturity investments must be reported at amortized cost. Available for Sale
   investments must be reported at fair value. Trading investments must be
   reported at fair value, and unrealized gains and losses must be included in
   earnings. The Company's investments are classified as Available for Sale.
   Because there has been little or no difference between the cost and fair
   value of the Company's investments during 1994, 1995 and 1996, the adoption
   of Statement 115 has had no material effect on the Company's consolidated
   financial statements.

       Income taxes

   The Company uses the asset and liability method of accounting for income
   taxes. Under the asset and liability method, deferred income taxes are
   recognized for the tax consequences of "temporary differences" by applying
   statutory tax rates applicable to future years to differences between the
   financial statement carrying amounts and the tax bases of existing assets and
   liabilities. The effect on deferred taxes of a change in tax rates is
   recognized in income in the period that includes the enactment date.

   The Company and its subsidiaries file consolidated federal income tax
   returns. Current and deferred federal income tax expense is allocated to any
   subsidiary with current pretax accounting income, using the applicable
   statutory tax rate without benefit for individual company credits or net
   operating loss deductions. The benefits of any credits and net operating loss
   deductions are recorded by the parent company.

   Deferred income tax liabilities have not been recognized as a result of the
   Company's net operating losses.

       Loss per common and common equivalent share

   Loss per common and common equivalent share is computed using UFGI's net
   loss, adjusted for redeemable preferred stock dividends and accretion of
   redeemable preferred stock to its redemption value. The adjusted net 

                                       20
<PAGE>
 
   loss is then divided by the weighted average number of common shares
   outstanding during the period, including dilutive common stock equivalents,
   if any, resulting from common stock options and convertible preferred stock
   outstanding. Such average common and common equivalent shares were
   approximately 8,074,000, for 1996, 1995, and 1994.

       Cash and cash equivalents

   For purposes of the statement of cash flows, cash and cash equivalents
   include time deposits which have original maturities of less than ninety days
   and which may be liquidated promptly to provide cash.
 
   2.    SHORT-TERM INVESTMENTS

   At December 31, 1996 and 1995, the components of short-term investments were
   as follows:

                                    (In Thousands) 
   ------------------------------------------------
   At December 31,                    1996    1995 
   ------------------------------------------------
   Certificates of deposit         $    --   1,159 
   United States Treasury Bills         --   1,459 
   Managed investment account        8,557   8,123 
   ------------------------------------------------
                                   $ 8,557  10,741 
   ------------------------------------------------
   ================================================ 


   The Company's managed investment account represents a portfolio of
   government, government agency and corporate obligations managed by an
   independent organization. The contract with that organization limits periods
   to maturity and specifies liquidity requirements. The Company's certificates
   of deposit and U.S. Treasury Bills were purchased with original maturities of
   one year or less. There were no significant differences between the amounts
   presented for short-term investments on the basis of amortized cost and the
   fair values of such assets.

   3.  LOANS AND NOTES RECEIVABLE

   At December 31, 1995, the Company had a note receivable from a former officer
   in the approximate amount of $19,000. Such note was repaid during 1996, and,
   at the end of the year, the Company had no remaining loans or notes
   receivable.

   Another promissory note receivable by the Company was repaid in 1995. That
   installment loan receivable required monthly payments to the Company of
   approximately $20,000 which included interest at a stated rate of 6.5% per
   annum. A discount related to the installment loan receivable was recorded in
   connection with purchase accounting for the business combination in which the
   note was acquired. Amortization of such discount adjusted interest income
   from the note to an effective annual rate of approximately 12%, a market rate
   at the date of the business combination. The installment loan receivable was
   repaid in full in December 1995. The remaining unamortized discount at that
   time, approximately $175,000, was written off and recognized as other income.

   4.  OTHER INVESTMENTS
 
   Other investments are summarized as follows:

                                              (In Thousands)
   -----------------------------------------------------------
   At December 31,                            1996      1995
   -----------------------------------------------------------
   Mortgage-backed securities               $   81        94
   Debt securities of a foreign government      --       250
   -----------------------------------------------------------
                                            $   81       344
   -----------------------------------------------------------
   ===========================================================

   The Company's mortgage-backed securities yield approximately 8.5% per annum.
   The foreign government bond, which was redeemed during 1996, paid variable
   rate interest, with a minimum of 7.5% per annum. The amounts presented for
   these investments are based on amortized cost, which approximates fair value.

   5.  NOTES PAYABLE AND OTHER BORROWINGS

   At December 31, 1996 and 1995, the Company's notes payable and other
   borrowings consisted of 9% Secured Sinking Fund Debentures due 1993 with an
   aggregate principal amount of $4,671,000 (the "Debentures"). 

                                       21
<PAGE>
 
   The Debentures are secured by a first lien on 51% of the stock of USAT, which
   has had no value since December 30, 1988.

   Under the terms of the Debentures, a sinking fund payment of approximately
   $1,826,000 was due August 1, 1992, and the full principal payment of
   $4,671,000 was due August 1, 1993. Those payments were not made by the
   Company. As a result, the trustee for the Debentures notified the Company
   that there had occurred an event of default under the terms of the Indenture.
   The trustee or the beneficial owners of the Debentures may, therefore, be
   entitled to take certain actions pursuant to the Indenture. The Company
   continued to pay semi-annual interest on the Debentures at the stated rate of
   9% and on the payment dates in effect prior to maturity of the Debentures
   (February 1 and August 1) through December 31, 1994. In January 1995, the
   Company was informed by the staff of the OTS and counsel to the FDIC that no
   additional interest payments should be made to the Debentureholders.
   Therefore, the Company did not pay interest in 1995 or 1996 and is not
   expected to make any future interest payments.

   Interest was accrued by the Company on the full amount of the outstanding
   principal balance of the Debentures until the end of 1996. No interest was
   paid in the years ended December 31, 1995 and 1996. Payments of interest
   totaled $420,000 for the year ended December 31, 1994. Included in accounts
   payable and accrued liabilities at December 31, 1995 was accrued interest
   payable of $596,000.

   Under the terms of the FDIC Settlement, the Company would pay a minimum of
   $1,360,000 to the Debentureholders. As of December 31, 1996, the liability
   for the Debentures has been adjusted to the amount expected to be paid, and
   accrued interest payable on the Debentures has been adjusted to zero to
   reflect the payment proposed in the FDIC Settlement and the Plan. The FDIC
   Settlement and the Plan are discussed further in Note 6.

   6.  COMMITMENTS AND CONTINGENT LIABILITIES

   In connection with its actions placing USAT into receivership on December 30,
   1988, the FDIC made claims against the Company for damages in excess of $100
   million (the "FDIC Claims"). The FDIC alleged that it was damaged by the
   Company's failure to maintain USAT's net worth in accordance with Federal
   Home Loan Bank Board regulations. Additionally, the FDIC claimed that, as a
   result of the Company's utilization of the benefits of certain tax losses
   incurred by USAT, the Company was obligated to USAT for amounts related to
   federal income tax refunds allegedly obtained. The Company has denied the
   merits of any potential claim alleged by the FDIC. In 1991, the Company
   entered an agreement to toll the running of the statute of limitations and
   certain other equitable defenses in order to delay final litigation decisions
   and to permit additional time for negotiation of a settlement of the FDIC
   Claims. Such agreement was amended several times to postpone its expiration.

   In mid-1994, settlement discussions relating to the FDIC Claims were joined
   by the Office of Thrift Supervision ("OTS"), a separate agency whose
   jurisdiction covers areas not included within the scope of the FDIC's
   jurisdiction. The OTS is investigating the possibility of certain regulatory
   violations (the "OTS Claims") by the Company and others, including current
   and former officers and directors of the Company. The Company denies any such
   violations and has been in negotiations with the OTS since September 1994
   concerning possible settlement of the OTS Claims. The Company entered an
   agreement with the OTS to toll the running of the statute of limitations,
   subject to the right of the OTS to terminate such agreements with 10 days'
   notice. That agreement was amended several times to postpone its expiration.

   Effective December 1995, the Company entered into agreements with the OTS and
   an agreement with the FDIC, the trustee for the 9% Secured Sinking Fund
   Debentures (the "Debenture Trustee") and Nu-West Florida, Inc. ("Nu-West"),
   as sole holder of the Company's Series B Preferred Stock (the "FDIC
   Settlement"). Under these agreements, the Company neither admits nor denies
   liability under claims by the FDIC and the OTS. The terms of the FDIC
   Settlement were incorporated in the Plan filed with the U.S. bankruptcy court
   sitting in Delaware January 14, 1997. Such Plan was confirmed by the
   Bankruptcy Court on March 31, 1997.

   The FDIC Settlement requires that the Company pay a minimum of $9,450,000 to
   the FDIC, a minimum of $1,360,000 to the Debentureholders and a minimum of
   $190,000 to Nu-West. An additional payment to the FDIC of up to $750,000 will
   be required should assets remain after the payment of the minimum amounts and
   expenses of the Company. Any amount received by the FDIC will be required to
   have 12.36% paid to the Debentureholders and 1.72% to Nu-West. Under the FDIC
   Settlement, expenses of the Company in excess of $300,000 will require
   approval by the FDIC and the OTS.

                                       22
<PAGE>
 
   As of December 31, 1996, the Company's liabilities have been adjusted to
   reflect the expected payments described above. The effects of such
   adjustments on the Company's financial statements are detailed below:

 
                                                    (In Thousands)
   ----------------------------------------------------------------------------
                                                          Minimum 
                                            Recorded     Expected 
                                            Liability     Payment   Adjustment
   ----------------------------------------------------------------------------
   9% Secured Sinking Fund Debentures     $     4,671       1,360        3,311
   Accrued Interest Payable on the                                             
    Debentures                                  1,015          --        1,015 
   FDIC and OTS and additional payments 
    to creditors and claimants                  6,122      10,200       (4,078)
   ----------------------------------------------------------------------------
   Effect of adjustments to liabilities   $    11,808      11,560          248
   ----------------------------------------------------------------------------
 
   The adjustment to reduce the commitment for Series B Preferred Stock
   dividends was recorded as a $5,727,000 decrease in the Company's retained
   deficit.

   While the Company, the FDIC, the OTS, and others have been negotiating the
   terms of a possible settlement of claims against the Company, there is no
   assurance that the Company will be able to consummate such a settlement, nor
   can the Company determine when, if ever, any settlement will be effected.

   7.  REDEEMABLE PREFERRED STOCK

   Redeemable preferred stock is summarized as follows:

                                             (In Thousands)
   --------------------------------------------------------
   At December 31,                            1996    1995
   --------------------------------------------------------
   Series B $13 cumulative, 58,725    
    shares authorized and outstanding     $  5,873   5,873
   Series C, 775,000 shares authorized;                   
    outstanding, 15,711 shares                 220     220
   Series E, 736,526 shares authorized                
     and outstanding                        10,311  10,311 
   --------------------------------------------------------
                                          $ 16,404  16,404
   --------------------------------------------------------
   ========================================================


   Series B $13 Cumulative Preferred Stock ("Series B Preferred Stock") requires
   a $13 per share, per year, cumulative dividend paid on a quarterly basis,
   with quarterly sinking fund payments of $146,813 commencing May 1, 1988 and
   annual mandatory redemptions commencing May 1, 1989. All such cumulative
   dividends and mandatory redemptions must be paid prior to the payment of any
   dividends, cancellation, redemption or repurchase of any junior class of
   preferred stock or the common stock. Commencing May 1, 1988, payments of
   Series B Preferred Stock dividends and mandatory redemptions were suspended.
   As of December 31, 1996, $6,680,000 of such dividends had accrued but were
   unpaid, representing eighty-three cents per share of common stock
   outstanding. Series B Preferred Stock has a preference over the Series C and
   Series E preferred stock issues. In November 1992, the holder of the Series B
   Preferred Stock, Nu-West Florida, Inc. ("Nu-West") filed an involuntary
   petition against the Company under Chapter 11 of the United States Bankruptcy
   Code. In 1996, this petition was dismissed with prejudice.

   Under the terms of the FDIC Settlement, the Company would pay a minimum of
   $190,000 to Nu-West. The amount of accrued Series B Preferred Stock dividends
   has been adjusted to that amount as of December 31, 1996. The terms of the
   FDIC Settlement are discussed further in Note 6.

   Series C Convertible Preferred Stock ("Series C Stock") does not pay
   dividends. In the event of liquidation, holders of Series C Stock will be
   entitled to receive $14 per share after all amounts due to UFGI's creditors
   and holders of Series B preferred have been paid. Since June 15, 1987, each
   share of Series C Stock has been convertible, at the shareholder's election,
   into two shares of UFGI's common stock. The Series C Stock was not redeemable
   by the Company until June 15, 1994, at which time the Company, if financially
   able, was obligated to redeem at a price of $14 per share, all outstanding
   shares of Series C Stock which had not been converted into common stock. The
   Company was not financially able to redeem the Series C Stock at June 15,
   1994. The Series C Stock was accreted so that the carrying value at the
   mandatory redemption date was equal to the mandatory redemption amount.

   Series E Convertible Preferred Stock ("Series E Stock") pays no dividends and
   has the same designations, preferences, and rights as the Series C Stock. In
   the event of liquidation, holders of Series E Stock will be entitled to
   receive $14 per share after all amounts due to UFGI's creditors and holders
   of Series B preferred 

                                       23
<PAGE>
 
   have been paid. Since July 1, 1989, each share of Series E Stock has been
   convertible, at the shareholder's election, into two shares of UFGI's common
   stock. The Series E Stock was not redeemable by the Company until June 15,
   1994, at which time the Company, if financially able, was obligated to redeem
   at a price of $14 per share, all outstanding shares of Series E Stock which
   had not been converted into common stock. The Company was not financially
   able to redeem the Series E Stock at June 15, 1994. The Series E Stock was
   accreted so that the carrying value at the mandatory redemption date was
   equal to the mandatory redemption amount.

   Under the terms of the Plan, the holders of the Series C Stock or the Series
   E Stock will receive no payments in connection with the reorganization of the
   Company.

   At December 31, 1996, total liquidation preferences of the Company's
   redeemable preferred stock were $23,084,000. Of that total, the liquidation
   preference and accrued but unpaid dividends on the Series B Stock comprised
   $12,553,000. The liquidation preferences for Series C Stock and Series E
   Stock were $220,000 and $10,311,000, respectively.

   8.  COMMON STOCKHOLDERS' DEFICIT

   The Company's liabilities and preferred stock redemption obligations,
   including accrued but unpaid dividends, exceeded assets by $16.6 million at
   December 31, 1996 and by $22.3 million at December 31, 1995. Payment of the
   obligations to creditors and claimants under the Plan is expected to require
   all of the Company's assets. See Notes 5, 6 and 7 for information on certain
   claims made against the Company.

   9.  STOCK OPTIONS

   Prior to 1989, the shareholders of UFGI approved four employee stock option
   plans and one non-employee director stock option plan. In connection with the
   placing of USAT into receivership in 1988, substantially all of the
   outstanding options were terminated; since that time, all other options
   except those reserved and outstanding under the 1987 Non-Employee Directors'
   Stock Option Plan, have terminated. At December 31, 1996, options for 10,000
   shares under the 1987 Non-Employee Directors' Stock Option Plan were
   outstanding and exercisable at a price of $3.25 per share. No options were
   exercised during 1996, 1995 or 1994.

   10.  FEDERAL INCOME TAXES

   No tax benefits have been recognized in connection with the Company's net
   losses in 1996, 1995 and 1994. Differences between the tax basis and
   financial reporting basis of the Company's assets and liabilities are
   primarily related to contingent liabilities previously accrued but not
   deducted for tax purposes. Payments against such liabilities will result in
   tax losses which exceed financial statement losses.

   The deferred tax liabilities of the Company have been reduced in prior
   periods by the recognition of the benefits of net operating loss deductions.
   Most of those deferred tax liabilities and net operating losses were
   attributable to discontinued operations.

   At December 31, 1996, UFGI had a tax net operating loss carryforward of
   approximately $6,982,000 which, if not utilized to offset future taxable
   income, will expire as follows: 1999  $307,000; 2002  $790,000; 2004 -
   $499,000; 2005 - $1,468,000; 2006 -- $627,000; 2007 -- $788,000; 2008 --
   $777,000; 2009 -- $759,000; 2010 -- $575,000; 2011 -- $391,000.

   Under provisions of the Internal Revenue Code, a parent corporation that
   joins in filing a consolidated federal income tax return with its subsidiary
   must make certain annual adjustments to the tax basis of stock it owns in
   such subsidiary. The required adjustments include, among other things, a
   decrease in the tax basis for tax losses of a subsidiary utilized to offset
   income of the parent and for dividend payments made by a subsidiary to its
   parent corporation. If a parent has a negative tax investment basis (referred
   to as an "excess loss account") with respect to the stock of the subsidiary,
   the occurrence of certain events, including the determination that the stock
   of the subsidiary is "worthless", results in the recognition of the excess
   loss account in taxable income. Prior to USAT being placed into receivership,
   UFGI had an excess loss account with respect to its investment in USAT of
   approximately $75 million.

   In connection with the FDIC placing USAT in receivership and the subsequent
   sale of USAT's assets, the FDIC provided a note (the "FSLIC Note") in the
   approximate amount of $261 million to USAT. A subsequent audit resulted in an
   increase of the FSLIC Note to $309 million. UFGI received a ruling from the

                                       24
<PAGE>
 
   Internal Revenue Service that UFGI's tax basis in USAT's stock was increased
   by the amount of the FSLIC Note. On December 30, 1988, UFGI's adjusted basis
   in USAT's stock was written off. The amount of such basis was either $186
   million or $234 million, depending on the treatment the subsequent increase
   of the FSLIC Note. As a result, the Company has additional loss carryforward
   benefits estimated at $156 million arising from 1988 losses, including the
   write-off of basis in the USAT stock. Based on a review of Internal Revenue
   Service rulings in matters unrelated to the Company, the Company believes
   those carryforward deductions may be characterized as ordinary losses, rather
   than capital losses. If so, those carryforward deductions will expire at the
   end of the fifteenth tax year after the year in which the loss was incurred.
   The Company may not, however, rely on Internal Revenue Service rulings to
   which the Company is not a party. If the 1988 losses were characterized as
   capital losses, the right to utilize loss carryforward deductions would have
   expired in 1993.

   Under the terms of the Plan structured to settle claims against the Company
   by the FDIC and the OTS, the Company would, except under limited
   circumstances, be unable to utilize the tax benefits of any net operating
   losses carried over from 1988 and prior years. The Plan is discussed further
   in Note 6.

   11.  RELATED PARTY TRANSACTIONS

   A shareholder in a law firm which provides legal services to the Company was
   a director of the Company until January 14, 1997. During 1996, 1995, and
   1994, billings to the Company for legal services and expenses by that firm
   totaled $153,000, $192,000, and $121,000, respectively.

                                       25
<PAGE>
 
   ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
            FINANCIAL DISCLOSURE

   During the Company's two most recent fiscal years, there have been no
   reported changes in, or disagreements with, the independent accountants of
   the Company.

                                    PART III

   ITEM 10.  DIRECTORS AND OFFICERS OF THE REGISTRANT

   The following table provides information with respect to the officers and
   directors of the Company as of December 31, 1996:
<TABLE> 
<CAPTION> 

   ---------------------------------------------------------------------------------------------
                                  Director of    Position and Office Presently Held with 
                                    Company     Company (and Present Principal Occupation 
           Name              Age     Since                   if Different)
   ---------------------------------------------------------------------------------------------
<S>                         <C>      <C>        <C>
 
   Arthur S. Berner (d)      53       1988      Attorney
   Paul N. Schwartz (b)(c)   51       1988      Chairman of the Board, President, Chief
                                                Executive Officer and Chief Financial Officer 
                                                of the Company; Executive Vice President and
                                                Chief Financial Officer of Maxxam, Inc. 
                                                ("Maxxam")
   James R. Whatley (a)(b)(c) 70      1978      Investments
   ---------------------------------------------------------------------------------------------
</TABLE>

   (a) Member of the Audit Committee.
   (b) Member of the Executive Committee.
   (c) Member of the Nominating Committee.
   (d) Mr. Berner resigned in January 1997.

   MR. BERNER resigned as a member of the Board of Directors of the Company on
   January 14, 1997. Mr. Berner is a shareholder in the law firm of Winstead
   Sechrest & Minick P.C. ("WSM") in Houston, Texas. He has been associated with
   WSM for more than the past five years.

   MR. SCHWARTZ was elected President and Chairman of the Board of the Company
   in August 1991. He has served as Vice President of MAXXAM from January 1982
   through June 1985 and Vice President-Corporate Development of MAXXAM from
   July 1985 until June 1987, when he was elected Senior Vice President-
   Corporate Development. On January 1, 1995, he was elected Executive Vice
   President and Chief Financial Officer of MAXXAM. He was elected to the Board
   of Directors of the Company in February 1988, and served as a member of the
   Board of USAT from February until December 1988.

   MR. WHATLEY is currently engaged in personal investments. He was Chairman of
   the Board of Kaneb Services, Inc. ("Kaneb") from April 1982 until June 1989,
   and remains a member of the Kaneb Board of Directors. From February 1982
   until April 1982, he also served as Chief Executive Officer of Kaneb.

   MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

   During 1996, the Board of Directors held two formal meetings. The Board also
   held numerous meetings by way of conference telephone. Each Director attended
   at least 75% of the meetings of the Board of Directors and committees on
   which he served during the period he was a Director. Directors who are not
   employees of the Company or its subsidiaries are paid an annual retainer fee
   of $6,000. In addition, each Director receives a fee of $1,000 for attendance
   at each meeting of the Board of Directors and each member of the Executive,
   Audit and Nominating Committees, who is not an employee of the Company, is
   paid a fee of $100 per committee meeting for attendance at each such meeting
   held in conjunction with a meeting of the Board of Directors of the Company
   and $250 per committee meeting for meetings not held in conjunction with such
   Board meetings. Commencing January 1, 1992, Mr. Whatley has agreed with the
   Company to defer until January 1997 the receipt of any fees attributable to
   his services as a Director. In addition, in 1996, Mr. Berner did not receive
   any fee for attendance at Board Meetings, such time being billed as part of
   Mr. Berner's legal services. For 1995 and 1996, Mr. Schwartz waived all fees
   for service as a director. Directors are reimbursed for reasonable expenses
   incurred in connection with attendance at Board or Board committee meetings.

                                       26
<PAGE>
 
   EXECUTIVE COMMITTEE The Executive Committee is authorized to exercise all of
   the powers of the Board of Directors except those not permitted by the
   Delaware General Corporation Law (the "Delaware Corporation Law"). All
   business transacted by the Executive Committee is subject to approval by the
   Board of Directors at its next regular meeting if required by resolution of
   the Board of Directors, by Delaware Corporation Law or by the Certificate or
   Bylaws of the Company. To the extent it may lawfully do so, the Executive
   Committee may initiate any action which the Board of Directors could initiate
   and may oversee and direct the day-to-day operations of the Company. The
   Executive Committee is expressly authorized by the Bylaws of the Company to
   declare dividends and to issue shares of stock of the Company. The current
   members of the Executive Committee are Mr. Schwartz, Chairman, and Mr.
   Whatley. During the year ended December 31, 1996, the Executive Committee did
   not meet.

   AUDIT COMMITTEE Through its review of all audit and examination functions,
   the Audit Committee furthers the knowledge of the Board of Directors
   concerning the administration of the Company and aids the Board of Directors
   in the fulfillment of its fiduciary responsibilities to the Stockholders of
   the Company. Audit and examination functions are conducted by KPMG Peat
   Marwick, L.L.P., the independent certified public accountants for the
   Company. The Committee is currently comprised of Mr. Whatley. during the year
   ended December 31, 1996, the Audit Committee did not meet.

   NOMINATING COMMITTEE The current Nominating Committee, consisting of Messrs.
   Whatley and Schwartz, was appointed for the purpose of nominating director
   candidates. The Nominating Committee considers nominees recommended by
   Stockholders. During the year ended December 31, 1996, the Nominating
   Committee did not meet.

                                       27
<PAGE>
 
   ITEM 11.  EXECUTIVE COMPENSATION

   The following table sets forth information with respect to the Chief
   Executive Officer of the Company for the years ended December 31, 1996, 1995
   and 1994. The Company has no executive officers, or other employees, as to
   whom the total annual salary and bonuses for the years ended December 31,
   1996, 1995 or 1994 exceeded $100,000.

                           SUMMARY COMPENSATION TABLE

   ---------------------------------------------------------------------------
                                                Annual Compensation
   ---------------------------------------------------------------------------
                                                                Other Annual 
      Name and Principal Position         Year   Salary  Bonus   Compensation 
   ---------------------------------------------------------------------------
   Paul N. Schwartz                          1996   $ 0   $ 0    $    0  (1)
   Chairman of the Board, President, Chief   1995   $ 0   $ 0    $    0  (1)
   Executive Officer and Chief Financial     
     Officer                                 1994   $ 0   $ 0    $1,000  (1) 
   ---------------------------------------------------------------------------

   (1) The Company pays no salary or bonus to Mr. Schwartz as Chairman of the
       Board, President, Chief Executive Officer and Chief Financial Officer nor
       does Mr. Schwartz receive any perquisites or other benefits from the
       Company. Mr. Schwartz's only compensation consists of his Board meeting
       fees which in 1994 were $1,000. In 1995 and 1996, Mr. Schwartz elected to
       waive his Board meeting fees. The Company has no other employees.
       Reference is made to the information contained under the heading "Certain
       Relationships and Related Transactions" relating to services provided to
       the Company by Mr. Berner, a director of the Company until January 14,
       1997.

   STOCK OPTION PLANS

   The Company currently maintains four plans (the "Option Plans") pursuant to
   which options to purchase shares of the Company's Common Stock are
   outstanding or available for future grants. The purpose of the Option Plans
   is to advance the best interests of the Company by providing those persons
   who have substantial responsibility for the management and growth of the
   Company with additional incentive by increasing their proprietary interest in
   the success of the Company. There are currently no options outstanding under
   any of the Option Plans with the exception of 10,000 shares granted in 1987
   to Mr. Whatley under the 1987 Non-Employee Director Stock Option Plan. Such
   options allow Mr. Whatley to purchase 10,000 shares of Common Stock at a
   price of $3.25 per share. The options are not currently "in-the-money", were
   fully vested in 1992 and will terminate on May 6, 1997 or such earlier date
   upon which Mr. Whatley ceases to be a Director of the Company.

   SECTION 16(A) -- BENEFICIAL OWNERSHIP REPORT AND COMPLIANCE

   Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
   requires the Company's directors and officers to file reports of ownership
   and changes in ownership in the Company's equity securities with the
   Securities and Exchange Commission and the Company. Based solely on a review
   of the copies of Forms 3,4, and 5 received by the Company, or on written
   representations from certain directors and officers that no updated Section
   16(a) forms are required to be filed by them, the Company believes that no
   director or officer of the Company filed a late report or failed to file a
   report required under Section 16(a) of the Exchange Act during or in respect
   of the year ended December 31, 1996.

                                       28
<PAGE>
 
   ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

                                    TABLE I

   The following table sets forth information with respect to the shares of
   Common Stock (the only class of voting securities of the Company), the Series
   B $13 Cumulative Preferred Stock (the "Series B Preferred Stock") and the
   Series E Convertible Preferred Stock owned of record and beneficially as of
   the Record Date by all persons who own of record or are known by the Company
   to own beneficially more than 5% of the outstanding shares of such class of
   stock, and by all directors and officers of the Company as a group. The
   Company believes that there are no persons who own of record, or
   beneficially, more than 5% of the outstanding Series C Convertible Preferred
   Stock.


<TABLE>
<CAPTION>
 
   ------------------------------------------------------------------------------------
                                                 Amount and Nature         Percent of
      Name and Address of Stockholder       of Beneficial Ownership (1)     Class (1)
   ------------------------------------------------------------------------------------
<S>                                       <C>            <C>               <C>
                                          
   MAXXAM, INC.                              
   5847 San Felipe, Suite 2600               
   Houston, Texas 77057                                                                
     Common Stock                             1,404,098      (2)(3)(4)(6)        17.4% 
     Series E Convertible Preferred Stock       688,824      (2)(3)(4)(6)        93.5% 
   MCO PROPERTIES, INC.                      
   5847 San Felipe, Suite 2600               
   Houston, Texas 77057                                                                
     Common Stock                               801,941      (2)(3)(4)(6)         9.8% 
     Series E Convertible Preferred Stock        47,702      (2)(3)(4)(6)         6.5% 
   NU-WEST FLORIDA, INC.                     
   4620 North State Road 7                   
   Ft. Lauderdale, Florida 33319                                                       
     Series B Cumulative Preferred Stock         58,725                         100.0% 
   ALL EXECUTIVE OFFICERS AND DIRECTORS AS   
    A GROUP (CONSISTING OF 3 PERSONS)                                                  
     Common Stock                                46,369         (2)(5)(6)         0.6% 
     Series B Cumulative Preferred Stock              0                           0.0% 
     Series E Convertible Preferred Stock             0      (2)(3)(4)(6)         0.0% 
   -------------------------------------------------------------------------------------
</TABLE>
   (1) Unless otherwise indicated, the holder or holders have sole voting and
       investment powers. Unless otherwise stated, the percentage of ownership
       is less than one percent.

   (2) As of December 31, 1996, MCO Properties, Inc. ("MCO"), a wholly owned
       subsidiary of MAXXAM, Inc. ("MAXXAM") and MAXXAM owned an aggregate of
       2,206,039 shares of the Company's outstanding Common Stock, constituting
       approximately 27.3% of the outstanding shares of such Common Stock.
       MAXXAM and MCO have filed a statement on Schedule 13D with the Securities
       and Exchange Commission (the "Commission") as a "group" within the
       meaning of the Securities Exchange Act of 1934 (the "Exchange Act") in
       connection with their ownership of the Company's Common Stock.

   (3) Each share of Series E Convertible Preferred Stock is convertible into
       two shares of Common Stock. The number of shares shown in the table does
       not include shares of Common Stock into which the Series E Convertible
       Preferred Stock is convertible. If such shares were included, MCO would
       own 897,345 or 9.4% of the then-outstanding shares, and MAXXAM would own
       2,781,746 or 29.1% of the then-outstanding shares.

   (4) Federated Development Company ("Federated") and various other persons
       have filed a statement on Schedule 13D with the Commission as a "group"
       (the "Federated Group") within the meaning of the Exchange Act in
       connection with their ownership of the MAXXAM Common Stock par value
       $0.50 per share (the "MAXXAM Common Stock"). As of December 31, 1996, the
       Federated Group beneficially owned, in the aggregate, 2,735,494 shares of
       the MAXXAM Common Stock (approximately 31.4% of the outstanding MAXXAM
       Common Stock), and 685,074 shares of the MAXXAM Class A Preferred Stock
       (approximately 99.1% of the outstanding), or an aggregate of
       approximately 61.4% of the total voting power of the MAXXAM capital
       stock. Federated disclaims any beneficial ownership in the shares of the
       Company's Common Stock owned by MAXXAM and MCO.

                                       29
<PAGE>
 
   (5) Includes 10,000 shares of Common Stock which are not currently
       outstanding but are subject to options exercisable within 60 days. See
       Table II below. Excludes shares of Common Stock and Series E Convertible
       Preferred Stock owned by MAXXAM and MCO.

   (6) With respect to the shares of Common Stock and Series E Convertible
       Preferred Stock owned by MAXXAM and MCO, Mr. Schwartz may be deemed to
       possess, indirectly, shared investment power. Mr. Schwartz disclaims
       beneficial ownership with respect to such shares.

                                    TABLE II

   The following table sets forth, as December 31, 1996, the beneficial
   ownership of Common Stock of each Director and for Officers and Directors of
   the Company as a group:
<TABLE>
<CAPTION>
 
   -----------------------------------------------------------------------------------------------------------------------
                                                           Amount and Nature of Beneficial Ownership
   -----------------------------------------------------------------------------------------------------------------------
                                                                            Options 
                                                                           Exercisable      
                                           Sole or Shared Voting and        within 60      Percent of Class (1)
    Name or Identity of Group                   Investment Power              Days 
   -----------------------------------------------------------------------------------------------------------------------
<S>                                        <C>                             <C>             <C>
   Arthur S. Berner (2)                                   2,300                     0                  0.0%
   Paul N. Schwartz                                           0 (3)                 0                  0.0%
   James R. Whatley                                      34,069                10,000                  0.6%
   All Officers and Directors as a Group                 36,369  
    (consisting of 3 persons)                             (3)(4)               10,000                  0.6%
   -----------------------------------------------------------------------------------------------------------------------
</TABLE>
   (1) Unless otherwise stated, the percentage of ownership is less than one
       percent. In calculating "percent of class" for any given individual or
       the group, all options exercisable by such individual or group within 60
       days are included.

   (2) Mr. Berner resigned as a member of the Board of Directors of the Company
       on January 14, 1997.

   (3) Excludes 1,404,098 and 801,941 shares of Common Stock held by MAXXAM and
       MCO, respectively, and shares of Common Stock to be received upon
       conversion of the Series E Convertible Preferred Stock. See Notes (2),
       (3), (4), and (6) of Table I, above.

   (4) During 1996, certain officers, directors and stockholders were subject to
       requirements to timely file reports with the Commission reflecting their
       initial ownership of the Company's Common Stock and any change in such
       ownership. All persons required to file reports have represented to the
       Company that they timely filed required reports, if any, and no further
       reports are required to be filed.

   ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   A shareholder in a law firm which provides legal services to the Company was
   a director of the Company until January 14, 1997. During 1996, 1995, and
   1994, billings to the Company for legal services and expenses by that firm
   totaled $153,000, $192,000, and $121,000, respectively.

                                       30
<PAGE>
 
                                    PART IV

   ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
   (a) (1)   FINANCIAL STATEMENTS

   The following are included herein on the pages noted:
 
   -----------------------------------------------------
   Applicable Section                             Page
   -----------------------------------------------------
   Independent Auditors' Report                      15

   Consolidated Statements of Financial        
    Condition as of December 31, 1996 and 1995       16 
    
   Consolidated Statements of Operations for the 
    Years Ended December 31, 1996, 1995 and 1994     17 
      
   Consolidated Statements of Common Stockholders' 
    Deficit for the Years Ended December 31, 1996, 
    1995 and 1994                                    18   
                                                 
   Consolidated Statements of Cash Flows for the
    Years Ended December 31, 1996, 1995 and 1994     19

   Notes to Consolidated Financial Statements        20
   -----------------------------------------------------

   (a) (2) FINANCIAL STATEMENT SCHEDULES

   Financial statement schedules are omitted because the conditions under which
   they are required are absent or because the required information is provided
   in the financial statements or notes thereto.

   (a) (3)  EXHIBITS

   -----------------------------------------------------------------------------
   Exhibit 
   Number                  Description of Exhibits
   -----------------------------------------------------------------------------

     3.1  Restated Certificate of Incorporation (as amended) of United Financial
          Group, Inc. Filed as Exhibit 3.2 to the Company's Annual Report on
          Form 10-K for the fiscal year ended December 31, 1985, and hereby
          incorporated by reference.

     3.2  Bylaws of the Company, as amended through December 31, 1987. Filed as
          Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal
          year ending December 31, 1986, and hereby incorporated by reference.

     4.2  Agreement and Plan of Reorganization dated August 27, 1982, between
          the Company and First American as set forth in Exhibit 2.1 of the
          Joint Proxy Statement filed on Form S-14 dated March 24, 1983, and
          hereby incorporated by reference.

     4.3  First Amendment to the Agreement and Plan of Reorganization dated as
          of January 10, 1983, (which amends Exhibit 4.2) as set forth in
          Exhibit 2.1.1 of the Joint Proxy Statement filed on Form S-14 and
          hereby incorporated by reference.

     4.4  Preferred Stock Purchase Agreement dated December 16, 1982, between
          the Company and Nu-West Florida, Inc. filed as Exhibit 4.5 to the
          Joint Registration and Proxy Statement filed on Form S-14 dated March
          24, 1983, and hereby incorporated by reference.

     4.5  Land Sale Agreement dated December 16, 1982, between USAT and Nu-West
          Florida, Inc., filed as Exhibit 4.6 to the Joint Registration and
          Proxy Statement filed on Form S-14 dated March 24, 1983, and hereby
          incorporated by reference.

     4.6  Loan and Commitment Agreement dated as of February 26, 1982, between
          First American and PennCorp filed as Exhibit 4.7 to the Joint
          Registration and Proxy Statement filed on Form S-14 dated March 24,
          1983, and hereby incorporated by reference.

     4.7  Certificate of Designation of the Company's Series A Preferred Stock,
          filed as Exhibit 4.8 of the Company's Annual Report on Form 10-K for
          the Fiscal Year Ended December 31, 1983, and hereby incorporated by
          reference.

     4.8  Provisions of the Certificate of Designation of the Company's Series B
          $13 Cumulative Preferred Stock, filed as Exhibit 4.9 of the Company's
          Annual Report on Form 10-K for the Fiscal Year Ended December 31,
          1983, and hereby incorporated by reference.

     4.9  Certificate of Designation Providing for Series C Convertible
          Preferred Stock, without par value, filed as Exhibit 4.8 to the
          Company's Registration Statement on Form S-1 (Registration Number 2-
          89708) and hereby incorporated by reference.

                                       31
<PAGE>
 
     4.10  Certificate of Series C Convertible Preferred Stock. Filed as Exhibit
           4.15 to the Company's Annual Report on Form 10-K for the year ended
           December 31, 1984, and hereby incorporated by reference.

     4.11  Certificate of Designation Providing for Series D Convertible
           Preferred Stock, without par value. Filed as Exhibit 4.19 to the
           Company's Annual Report on Form 10-K for the year ended December 31,
           1987, and hereby incorporated by reference.

     4.12  Certificate of Designation Providing for Series E Convertible
           Preferred Stock, without par value. Filed as Exhibit 4.12 to the
           Company's Annual Report on Form 10-K for the year ended December 31,
           1988 and incorporated by reference.

     10.1  1984 United Financial Group, Inc. Stock Option Plan filed as Exhibit
           10.22 to the Company's Registration Statement filed on Form S-1
           (Registration No. 2-89768) and hereby incorporated by reference.

     10.2  1984 United Financial Group, Inc. Stock Option Plan filed as Exhibit
           10.23 to the Company's Registration Statement filed on Form S-1
           (Registration No. 2-89768) and hereby incorporated by reference.

     10.3  1984 United Financial Group, Inc. Stock Option Plan filed as Exhibit
           10.24 to the Company's Registration Statement filed on Form S-1
           (Registration No. 2-89768) and hereby incorporated by reference.

     10.4  Agreement between the Company and C. E. Bentley dated November 14,
           1985. Filed as Exhibit 10.14 to the Company's Annual Report on Form
           10-K for the fiscal year ended December 31, 1985, and hereby
           incorporated by reference.

     10.5  United Financial Group, Inc. 1986 Stock Option Plan filed as Exhibit
           A to the Company's Registration Statement filed on Form S-8
           (Registration No. 33-5880) and hereby incorporated by reference.

     10.6  United Financial Group, Inc. Compensation Deferral Plan as amended.
           Filed as Exhibit 10.16 to the Company's Annual Report on Form 10-K
           for the fiscal year ended December 31, 1987, and hereby incorporated
           by reference.

     10.7  United Financial Group, Inc. 1987 Non-employee Directors' Stock
           Option Plan. Filed as Exhibit 10.12 to the Company's Annual Report on
           Form 10-K for the year ended December 31, 1987, and hereby
           incorporated by reference.

     10.8  Form of Employment Agreements entered into by and between United
           Financial Group, Inc. and certain executive employees. Filed as
           Exhibit 10.16 to the Company's Annual Report on Form 10-K for the
           year ended December 31, 1987, and hereby incorporated by reference.

     10.9  Form of agreement entered into between the Company and Messrs. Crow
           and Gross relating to guaranteed minimum bonus to repay debt to
           Company. Filed as Exhibit 10.18 to the Company's Annual Report on
           Form 10-K for the year ended December 31, 1987, and hereby
           incorporated by reference.

     10.10 Agreement entered into between the Company and Mr. Gross relating to
           his severance arrangements. Filed as Exhibit 10.10 to the Company's
           Annual Report on Form 10-K for the year ended December 31, 1988, and
           hereby incorporated by reference.

     10.11 Agreement entered into between the Company and Mr. Crow relating to
           the cancellation of his Share Note. Filed as Exhibit 10.11 to the
           Company's Annual Report on Form 10-K for the year ended December 31,
           1988, and hereby incorporated by reference.

     10.12 Form of Employment Contract entered into between the Company and
           Certain Executive Officers dated as of June 30, 1988. Filed as
           Exhibit 10.12 to the Company's Annual Report on Form 10-K for the
           year ended December 31, 1988, and hereby incorporated by reference.

     10.13 Agreement between the Company and Bering Corp. relating to
           management of the Company's equity securities. Filed as Exhibit 10.13
           to the Company's Annual Report on Form 10-K for the year ended
           December 31, 1988, and hereby incorporated by reference.

     10.14 Letter dated January 9, 1989, from Bear Stearns & Co. relating to
           USAT receivership. Filed as Exhibit 10.14 to the Company's Annual
           Report on Form 10-K for the year ended December 31, 1988, and hereby
           incorporated by reference.

     10.15 Agreement dated as of December 19, 1989, between the Company and Nu-
           West Florida, Inc. relating to redemption of Series B Preferred
           Stock. Filed as Exhibit 10.15 to the Company's Annual Report on Form
           10-K for the year ended December 31, 1990, and hereby incorporated by
           reference.

     10.16 Agreement dated August 3, 1989, between the Company and J.J. Gray
           relating to settlement of employment matter. Filed as Exhibit 10.16
           to the Company's Annual Report on Form 10-K for the year ended
           December 31, 1989 and hereby incorporated by reference.

                                       32
<PAGE>
 
     10.17 Agreement dated August 3, 1989, between the Company and James
           Jackson relating to settlement of employment matter. Filed as Exhibit
           10.17 to the Company's Annual Report on Form 10-K for the year ended
           December 31, 1989 and hereby incorporated by reference.

     10.18 Agreement dated August 3, 1989, between the Company and James Wolfe
           relating to settlement of employment matter. Filed as Exhibit 10.18
           to the Company's Annual Report on Form 10-K for the year ended
           December 31, 1989 and hereby incorporated by reference.

     10.19 Agreement dated August 1, 1989, between the Company and Michael R.
           Crow relating to settlement of employment matter. Filed as Exhibit
           10.19 to the Company's Annual Report on Form 10-K for the year ended
           December 31, 1989 and hereby incorporated by reference.

     10.20 Agreement dated August 1, 1989, between the Company and Bruce
           Williams relating to settlement of employment matter. Filed as
           Exhibit 10.20 to the Company's Annual Report on Form 10-K for the
           year ended December 31, 1989 and hereby incorporated by reference.

     10.21 Agreement dated August 3, 1989, between the Company and Eugene
           Stodart relating to settlement of employment matter. Filed as Exhibit
           10.21 to the Company's Annual Report on Form 10-K for the year ended
           December 31, 1989 and hereby incorporated by reference.

     10.22 Agreement dated October 16, 1989, between the Company and Arthur S.
           Berner relating to settlement of employment matter. Filed as Exhibit
           10.22 to the Company's Annual Report on Form 10-K for the year ended
           December 31, 1989 and hereby incorporated by reference.

     10.23 Agreement dated December 1, 1989, between the Company and Barry
           Munitz relating to settlement of employment matter. Filed as Exhibit
           10.23 to the Company's Annual Report on Form 10-K for the year ended
           December 31, 1989 and hereby incorporated by reference.

     10.24 Agreement entered into by the Company and Mr. Berner relating to his
           severance arrangement. Filed as Exhibit 10.1 to the Company's
           quarterly report on Form 10-Q for the quarter ended September 30,
           1991, and hereby incorporated by reference.

     10.25 Form of Tolling Agreement between the Company and the FDIC. Filed as
           Exhibit 10.25 to the Company's Annual Report on Form 10-K for the
           year ended December 31, 1991, and hereby incorporated by reference.

     10.26 Form of Tolling Agreement between the Company and the OTS. Filed as
           Exhibit 10.26 to the Company's Annual Report on Form 10-K for the
           year ended December 31, 1994, and hereby incorporated by reference.

     10.27 Form of Stipulation and Consent to Issuance of Consent Cease and
           Desist Order for Affirmative Relief with the Office of Thrift
           Supervision. Filed as Exhibit 10.27 to the Company's Annual Report on
           Form 10-K for the year ended December 31, 1995, and hereby
           incorporated by reference.

     10.28 Form of Consent Cease and Desist Order for Affirmative Relief by the
           Office of Thrift Supervision. Filed as Exhibit 10.28 to the Company's
           Annual Report on Form 10-K for the year ended December 31, 1995, and
           hereby incorporated by reference.

     10.29 Form of Settlement Agreement and Release with the Federal Deposit
           Insurance Corporation, First Trust of California, National
           Association and Nu-West Florida, Inc. Filed as Exhibit 10.29 to the
           Company's Annual Report on Form 10-K for the year ended December 31,
           1995, and hereby incorporated by reference.

     10.30 Form of Plan of Reorganization of United Financial Group, Inc. Filed
           as Exhibit 2.1 to the Company's Report on Form 8-K dated January 14,
           1997, and hereby incorporated by reference.

     10.31 Form of Disclosure Statement of United Financial Group, Inc. Filed
           with the Delaware Bankruptcy Court on January 14, 1997. Filed
           herewith.

     11.1  United Financial Group, Inc. Computation of Net Loss Per Common and
           Common Equivalent Share for the Years Ended December 31, 1996, 1995
           and 1994. Filed herewith.

     21.1  Subsidiaries of United Financial Group, Inc. Filed herewith.

     23.1  Consent of KPMG Peat Marwick LLP. Filed herewith.
   -----------------------------------------------------------------------------

   (b) REPORTS ON FORM 8-K

   During the last quarter of 1996, the Registrant filed no reports on Form 8-K.

                                       33
<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.


                                        UNITED FINANCIAL GROUP, INC.
 
 
                                         By:      PAUL N. SCHWARTZ
                                             ________________________
                                                   Paul N. Schwartz
                                                Chairman of the Board,
                                          President, Chief Executive Officer and
                                               Chief Financial Officer

   March 31, 1997

   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.

<TABLE> 
<CAPTION> 

           Signature                                 Capacity                    Date

<S>                                   <C>                                       <C> 
                                       Chairman of the Board of Directors,
                                       President, Chief Executive Officer
        Paul N. Schwartz                 and Chief Financial Officer            March 31, 1997
   ________________________________
       (Paul N. Schwartz)



        James R. Whatley                            Director                    March 31, 1997
   ________________________________
       (James R. Whatley)

</TABLE> 

                                       34
<PAGE>
 
===============================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K



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

For the Fiscal Year Ended DECEMBER 31, 1996

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 ( d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

For the transition period from _________________________ to ____________________

Commission File Number 0-10443



                          UNITED FINANCIAL GROUP, INC.
             (Exact Name of Registrant as specified in its Charter)


          DELAWARE                                   74-2029669
(State or other jurisdiction of         (I.R.S. Employer Identification Number)
 incorporation or organization)

    5847 SAN FELIPE, SUITE 2600                         77057
          Houston, Texas                             (Zip Code)
(Address of principal executive offices)


Registrant's telephone number, including area code:  (713) 267-3781



                                   EXHIBITS
<PAGE>
 
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                                                                    Sequentially
Exhibit                                                                Numbered
Number                   Description of Exhibits                         Page
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3.1  Restated Certificate of Incorporation (as amended) of United Financial
     Group, Inc. Filed as Exhibit 3.2 to the Company's Annual Report on Form 10-
     K for the fiscal year ended December 31, 1985, and hereby incorporated by
     reference.

3.2  Bylaws of the Company, as amended through December 31, 1987. Filed as
     Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year
     ending December 31, 1986, and hereby incorporated by reference.

4.2  Agreement and Plan of Reorganization dated August 27, 1982, between the
     Company and First American as set forth in Exhibit 2.1 of the Joint Proxy
     Statement filed on Form S-14 dated March 24, 1983, and hereby incorporated
     by reference.

4.3  First Amendment to the Agreement and Plan of Reorganization dated as of
     January 10, 1983, (which amends Exhibit 4.2) as set forth in Exhibit 2.1.1
     of the Joint Proxy Statement filed on Form S-14 and hereby incorporated by
     reference.

4.4  Preferred Stock Purchase Agreement dated December 16, 1982, between the
     Company and Nu-West Florida, Inc. filed as Exhibit 4.5 to the Joint
     Registration and Proxy Statement filed on Form S-14 dated March 24, 1983,
     and hereby incorporated by reference.

4.5  Land Sale Agreement dated December 16, 1982, between USAT and Nu-West
     Florida, Inc., filed as Exhibit 4.6 to the Joint Registration and Proxy
     Statement filed on Form S-14 dated March 24, 1983, and hereby incorporated
     by reference.

4.6  Loan and Commitment Agreement dated as of February 26, 1982, between First
     American and PennCorp filed as Exhibit 4.7 to the Joint Registration and
     Proxy Statement filed on Form S-14 dated March 24, 1983, and hereby
     incorporated by reference.

4.7  Certificate of Designation of the Company's Series A Preferred Stock, filed
     as Exhibit 4.8 of the Company's Annual Report on Form 10-K for the Fiscal
     Year Ended December 31, 1983, and hereby incorporated by reference.

4.8  Provisions of the Certificate of Designation of the Company's Series B $13
     Cumulative Preferred Stock, filed as Exhibit 4.9 of the Company's Annual
     Report on Form 10-K for the Fiscal Year Ended December 31, 1983, and hereby
     incorporated by reference.

4.9  Certificate of Designation Providing for Series C Convertible Preferred
     Stock, without par value, filed as Exhibit 4.8 to the Company's
     Registration Statement on Form S-1 (Registration Number 2-89708) and hereby
     incorporated by reference.

4.10 Certificate of Series C Convertible Preferred Stock. Filed as Exhibit 4.15
     to the Company's Annual Report on Form 10-K for the year ended December 31,
     1984, and hereby incorporated by reference.

4.11 Certificate of Designation Providing for Series D Convertible Preferred
     Stock, without par value. Filed as Exhibit 4.19 to the Company's Annual
     Report on Form 10-K for the year ended December 31, 1987, and hereby
     incorporated by reference.

4.12 Certificate of Designation Providing for Series E Convertible Preferred
     Stock, without par value. Filed as Exhibit 4.12 to the Company's Annual
     Report on Form 10-K for the year ended December 31, 1988 and incorporated
     by reference.
<PAGE>
 
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                                                                    Sequentially
Exhibit                                                                Numbered
Number                    Description of Exhibits                        Page
--------------------------------------------------------------------------------

10.1  1984 United Financial Group, Inc. Stock Option Plan filed as Exhibit 10.22
      to the Company's Registration Statement filed on Form S-1 (Registration
      No. 2-89768) and hereby incorporated by reference.

10.2  1984 United Financial Group, Inc. Stock Option Plan filed as Exhibit 10.23
      to the Company's Registration Statement filed on Form S-1 (Registration
      No. 2-89768) and hereby incorporated by reference.

10.3  1984 United Financial Group, Inc. Stock Option Plan filed as Exhibit 10.24
      to the Company's Registration Statement filed on Form S-1 (Registration
      No. 2-89768) and hereby incorporated by reference.

10.4  Agreement between the Company and C. E. Bentley dated November 14, 1985.
      Filed as Exhibit 10.14 to the Company's Annual Report on Form 10-K for the
      fiscal year ended December 31, 1985, and hereby incorporated by reference.

10.5  United Financial Group, Inc. 1986 Stock Option Plan filed as Exhibit A to
      the Company's Registration Statement filed on Form S-8 (Registration No.
      33-5880) and hereby incorporated by reference.

10.6  United Financial Group, Inc. Compensation Deferral Plan as amended. Filed
      as Exhibit 10.16 to the Company's Annual Report on Form 10-K for the
      fiscal year ended December 31, 1987, and hereby incorporated by reference.

10.7  United Financial Group, Inc. 1987 Non-employee Directors' Stock Option
      Plan. Filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K
      for the year ended December 31, 1987, and hereby incorporated by
      reference.

10.8  Form of Employment Agreements entered into by and between United Financial
      Group, Inc. and certain executive employees. Filed as Exhibit 10.16 to the
      Company's Annual Report on Form 10-K for the year ended December 31, 1987,
      and hereby incorporated by reference.

10.9  Form of agreement entered into between the Company and Messrs. Crow and
      Gross relating to guaranteed minimum bonus to repay debt to Company. Filed
      as Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year
      ended December 31, 1987, and hereby incorporated by reference.

10.10 Agreement entered into between the Company and Mr. Gross relating to his
      severance arrangements. Filed as Exhibit 10.10 to the Company's Annual
      Report on Form 10-K for the year ended December 31, 1988, and hereby
      incorporated by reference.

10.11 Agreement entered into between the Company and Mr. Crow relating to the
      cancellation of his Share Note. Filed as Exhibit 10.11 to the Company's
      Annual Report on Form 10-K for the year ended December 31, 1988, and
      hereby incorporated by reference.

10.12 Form of Employment Contract entered into between the Company and Certain
      Executive Officers dated as of June 30, 1988. Filed as Exhibit 10.12 to
      the Company's Annual Report on Form 10-K for the year ended December 31,
      1988, and hereby incorporated by reference.

10.13 Agreement between the Company and Bering Corp. relating to management of
      the Company's equity securities. Filed as Exhibit 10.13 to the Company's
      Annual Report on Form 10-K for the year ended December 31, 1988, and
      hereby incorporated by reference.

10.14 Letter dated January 9, 1989, from Bear Stearns & Co. relating to USAT
      receivership. Filed as Exhibit 10.14 to the Company's Annual Report on
      Form 10-K for the year ended December 31, 1988, and hereby incorporated by
      reference.
<PAGE>
 
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                                                                    Sequentially
Exhibit                                                                Numbered
Number                  Description of Exhibits                          Page
--------------------------------------------------------------------------------

10.15 Agreement dated as of December 19, 1989, between the Company and Nu-West
      Florida, Inc. relating to redemption of Series B Preferred Stock. Filed as
      Exhibit 10.15 to the Company's Annual Report on Form 10-K for the year
      ended December 31, 1990, and hereby incorporated by reference.

10.16 Agreement dated August 3, 1989, between the Company and J.J. Gray relating
      to settlement of employment matter. Filed as Exhibit 10.16 to the
      Company's Annual Report on Form 10-K for the year ended December 31, 1989
      and hereby incorporated by reference.

10.17 Agreement dated August 3, 1989, between the Company and James Jackson
      relating to settlement of employment matter. Filed as Exhibit 10.17 to the
      Company's Annual Report on Form 10-K for the year ended December 31, 1989
      and hereby incorporated by reference.

10.18 Agreement dated August 3, 1989, between the Company and James Wolfe
      relating to settlement of employment matter. Filed as Exhibit 10.18 to the
      Company's Annual Report on Form 10-K for the year ended December 31, 1989
      and hereby incorporated by reference.

10.19 Agreement dated August 1, 1989, between the Company and Michael R. Crow
      relating to settlement of employment matter. Filed as Exhibit 10.19 to the
      Company's Annual Report on Form 10-K for the year ended December 31, 1989
      and hereby incorporated by reference.

10.20 Agreement dated August 1, 1989, between the Company and Bruce Williams
      relating to settlement of employment matter. Filed as Exhibit 10.20 to the
      Company's Annual Report on Form 10-K for the year ended December 31, 1989
      and hereby incorporated by reference.

10.21 Agreement dated August 3, 1989, between the Company and Eugene Stodart
      relating to settlement of employment matter. Filed as Exhibit 10.21 to the
      Company's Annual Report on Form 10-K for the year ended December 31, 1989
      and hereby incorporated by reference.

10.22 Agreement dated October 16, 1989, between the Company and Arthur S. Berner
      relating to settlement of employment matter. Filed as Exhibit 10.22 to the
      Company's Annual Report on Form 10-K for the year ended December 31, 1989
      and hereby incorporated by reference.

10.23 Agreement dated December 1, 1989, between the Company and Barry Munitz
      relating to settlement of employment matter. Filed as Exhibit 10.23 to the
      Company's Annual Report on Form 10-K for the year ended December 31, 1989
      and hereby incorporated by reference.

10.24 Agreement entered into by the Company and Mr. Berner relating to his
      severance arrangement. Filed as Exhibit 10.1 to the Company's quarterly
      report on Form 10-Q for the quarter ended September 30, 1991, and hereby
      incorporated by reference.

10.25 Form of Tolling Agreement between the Company and the FDIC. Filed as
      Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year
      ended December 31, 1991 and hereby incorporated by reference.

10.26 Form of Tolling Agreement between the Company and the OTS. Filed as
      Exhibit 10.26 to the Company's Annual Report on Form 10-K for the year
      ended December 31, 1994 and hereby incorporated by reference.
<PAGE>
 
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                                                                    Sequentially
Exhibit                                                                Numbered
Number                        Description of Exhibits                    Page
--------------------------------------------------------------------------------

10.27  Form of Stipulation and Consent to Issuance of Consent Cease and Desist
       Order for Affirmative Relief with the Office of Thrift Supervision. Filed
       as Exhibit 10.27 to the Company's Annual Report on Form 10-K for the year
       ended December 31, 1995, and hereby incorporated by reference.

10.28  Form of Consent Cease and Desist Order for Affirmative Relief by the
       Office of Thrift Supervision. Filed as Exhibit 10.28 to the Company's
       Annual Report on Form 10-K for the year ended December 31, 1995, and
       hereby incorporated by reference.

10.29  Form of Settlement Agreement and Release with the Federal Deposit
       Insurance Corporation, First Trust of California, National Association
       and Nu-West Florida, Inc. Filed as Exhibit 10.29 to the Company's Annual
       Report on Form 10-K for the year ended December 31, 1995, and hereby
       incorporated by reference.

10.30  Form of Plan of Reorganization of United Financial Group, Inc. Filed as
       Exhibit 2.1 to the Company's Report on Form 8-K dated January 14, 1997,
       and hereby incorporated by reference.

10.31  Form of Disclosure Statement of United Financial Group, Inc. Filed with
       the Delaware Bankruptcy Court on January 14, 1997. Filed herewith.

11.1   United Financial Group, Inc. Computation of Net Loss Per Common and
       Common Equivalent Share for the Years Ended December 31, 1996, 1995 and
       1994. Filed herewith.

21.1  Subsidiaries of United Financial Group, Inc. Filed herewith. 

23.1  Consent of KPMG Peat Marwick LLP. Filed herewith.