10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2010

Commission file number 0-7674

FIRST FINANCIAL BANKSHARES, INC.

(Exact name of registrant as specified in its charter)

Texas	75-0944023
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
400 Pine Street, Abilene, Texas	79601
(Address of principal executive offices)	(Zip Code)

(325) 627-7155
(Registrant’s telephone number, including area code)

     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. Yes þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

       Large accelerated filer þ  Accelerated filer o  Non-accelerated filer   o
(Do not check if a smaller reporting company) Smaller reporting company o 

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Class	Outstanding at May 4, 2010
Common Stock, $0.01 par value per share	20,847,889

TABLE OF CONTENTS

PART I
FINANCIAL INFORMATION
Item	Page
1. Financial Statements		3
Consolidated Balance Sheets — Unaudited		4
Consolidated Statements of Earnings — Unaudited		5
Consolidated Statements of Comprehensive Earnings — Unaudited		6
Consolidated Statements of Changes in Shareholders’ Equity — Unaudited		7
Consolidated Statements of Cash Flows — Unaudited		8
Notes to Consolidated Financial Statements — Unaudited		9
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
3. Quantitative and Qualitative Disclosures About Market Risk		38
4. Controls and Procedures		38
PART II
OTHER INFORMATION
6. Exhibits		40
Signatures		41
EX-10.2
EX-10.3
EX-10.4
EX-31.1
EX-31.2
EX-32.1
EX-32.2

2

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

The consolidated balance sheets of First Financial Bankshares, Inc. (the “Company”) at March 31, 2010 and 2009 and December 31, 2009, and the consolidated statements of earnings, comprehensive earnings, changes in shareholders’ equity and cash flows for the three months ended March 31, 2010 and 2009, follow on pages 4 through 8.

3

FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

	March 31,						December 31,
	2010			2009			2009
	(Unaudited)
ASSETS
CASH AND DUE FROM BANKS	$	95,234		$	112,207		$	139,915
FEDERAL FUNDS SOLD		—			46,575			14,290
INTEREST-BEARING DEPOSITS IN BANKS		192,848			2,636			167,336
Total cash and cash equivalents		288,082			161,418			321,541
TRADING SECURITIES, at fair value		—			93,195			—
SECURITIES HELD-TO-MATURITY (fair value of $11,831, $20,626 and $15,674 at March 31, 2010 and 2009 and December 31, 2009, respectively)		11,478			20,086			15,273
SECURITIES AVAILABLE-FOR-SALE, at fair value		1,396,230			1,217,185			1,270,104
LOANS
Held for investment		1,496,444			1,465,310			1,510,046
Held for sale		2,557			14,242			4,323
		1,499,001			1,479,552			1,514,369
Less: Allowance for loan losses		(28,750	)		(22,652	)		(27,612	)
Net loans		1,470,251			1,456,900			1,486,757
BANK PREMISES AND EQUIPMENT, net		65,652			64,888			64,363
INTANGIBLE ASSETS		62,993			63,781			63,152
OTHER ASSETS		58,269			43,909			58,266
Total assets	$	3,352,955		$	3,121,362		$	3,279,456
LIABILITIES AND SHAREHOLDERS’ EQUITY
NONINTEREST-BEARING DEPOSITS	$	804,556		$	769,393		$	836,323
INTEREST-BEARING DEPOSITS		1,885,558			1,752,322			1,848,434
Total deposits		2,690,114			2,521,715			2,684,757
DIVIDENDS PAYABLE		7,087			7,074			7,081
SHORT-TERM BORROWINGS		189,095			166,347			146,094
OTHER LIABILITIES		42,838			44,687			25,822
Total liabilities		2,929,134			2,739,823			2,863,754
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY
Common stock — $0.01 par value, authorized 40,000,000 shares; 20,845,424, 20,804,668, and 20,826,431 shares issued at March 31, 2010 and 2009 and December 31, 2009, respectively		208			208			208
Capital surplus		269,880			268,271			269,294
Retained earnings		121,754			96,267			115,123
Treasury stock (shares at cost: 164,162, 159,236, and 162,836 at March 31, 2010 and 2009, and December 31, 2009, respectively)		(3,946	)		(3,580	)		(3,833	)
Deferred compensation		3,946			3,580			3,833
Accumulated other comprehensive earnings		31,979			16,793			31,077
Total shareholders’ equity		423,821			381,539			415,702
Total liabilities and shareholders’ equity	$	3,352,955		$	3,121,362		$	3,279,456

See notes to consolidated financial statements.

4

FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS — (UNAUDITED)

(Dollars in thousands, except per share amounts)

	Three Months Ended March 31,
	2010		2009
INTEREST INCOME:
Interest and fees on loans	$	22,374	$	23,054
Interest on investment securities:
Taxable		8,966		9,655
Exempt from federal income tax		4,633		4,128
Interest on trading securities		—		83
Interest on federal funds sold and interest-bearing deposits in banks		372		42
Total interest income		36,345		36,962
INTEREST EXPENSE:
Interest on deposits		3,535		4,777
Other		164		261
Total interest expense		3,699		5,038
Net interest income		32,646		31,924
PROVISION FOR LOAN LOSSES		2,010		1,761
Net interest income after provision for loan losses		30,636		30,163
NONINTEREST INCOME:
Trust fees		2,526		2,117
Service charges on deposit accounts		4,858		5,141
ATM and credit card fees		2,511		2,209
Real estate mortgage operations		560		588
Net gain on securities transactions		1		249
Net gain on sale of student loans		—		616
Net gain (loss) on sale of foreclosed assets		11		(159	)
Other		643		775
Total noninterest income		11,110		11,536
NONINTEREST EXPENSE:
Salaries and employee benefits		12,657		11,992
Net occupancy expense		1,578		1,620
Equipment expense		1,838		1,940
Printing, stationery and supplies		429		433
FDIC insurance premiums		988		951
Correspondent bank service charges		191		312
ATM and interchange expense		774		801
Professional and service fees		693		746
Amortization of intangible assets		159		222
Other expenses		4,031		3,930
Total noninterest expense		23,338		22,947
EARNINGS BEFORE INCOME TAXES		18,408		18,752
INCOME TAX EXPENSE		4,691		5,048
NET EARNINGS	$	13,717	$	13,704
EARNINGS PER SHARE, BASIC	$	0.66	$	0.66
EARNINGS PER SHARE, ASSUMING DILUTION	$	0.66	$	0.66
DIVIDENDS PER SHARE	$	0.34	$	0.34

See notes to consolidated financial statements.

5

FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS — (UNAUDITED)

(Dollars in thousands)

	Three Months Ended March 31,
	2010			2009
NET EARNINGS	$	13,717		$	13,704
OTHER ITEMS OF COMPREHENSIVE EARNINGS:
Change in unrealized gain on investment securities available-for-sale, before income taxes		1,388			9,393
Reclassification adjustment for realized gains on investment securities included in net earnings, before income tax		(1	)		(249	)
Total other items of comprehensive earnings		1,387			9,144
Income tax expense		(485	)		(3,201	)
COMPREHENSIVE EARNINGS	$	14,619		$	19,647

See notes to consolidated financial statements.

6

FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Dollars in thousands, except per share amounts)

																		Accumulated
																		Other		Total
	Common Stock				Capital		Retained			Treasury Stock						Deferred		Comprehensive		Shareholders’
	Shares		Amount		Surplus		Earnings			Shares			Amounts			Compensation		Earnings		Equity
Balances at December 31, 2008		20,799,198	$	208	$	268,087	$	89,637			(158,811	)	$	(3,500	)	$	3,500	$	10,850	$	368,782
Net earnings (unaudited)		—		—		—		13,704			—			—			—		—		13,704
Stock issuances (unaudited)		5,470		—		103		—			—			—			—		—		103
Cash dividends declared, $0.34 per share (unaudited)		—		—		—		(7,074	)		—			—			—		—		(7,074	)
Change in unrealized gain (loss) in investment securities available-for-sale, net of related income taxes (unaudited)		—		—		—		—			—			—			—		5,943		5,943
Additional tax benefit related to directors’ deferred compensation plan (unaudited)		—		—		15		—			—			—			—		—		15
Shares purchased in connection with directors’ deferred compensation plan, net (unaudited)		—		—		—		—			(425	)		(80	)		80		—		—
Stock option expense (unaudited)		—		—		66		—			—			—			—		—		66
Balances at March 31, 2009 (unaudited)		20,804,668		208	$	268,271	$	96,267			(159,236	)	$	(3,580	)	$	3,580	$	16,793	$	381,539
Balances at December 31, 2009		20,826,431	$	208	$	269,294	$	115,123			(162,836	)	$	(3,833	)	$	3,833	$	31,077	$	415,702
Net earnings (unaudited)		—		—		—		13,717			—			—			—		—		13,717
Stock issuances (unaudited)		18,993		—		476		—			—			—			—		—		476
Cash dividends declared, $0.34 per share (unaudited)		—		—		—		(7,086	)		—			—			—		—		(7,086	)
Change in unrealized gain in investment securities available- for-sale, net of related income taxes (unaudited)		—		—		—		—			—			—			—		902		902
Additional tax benefit related to directors’ deferred compensation plan (unaudited)		—		—		15		—			—			—			—		—		15
Shares purchased in connection with directors’ deferred compensation plan, net (unaudited)		—		—		—		—			(1,326	)		(113	)		113		—		—
Stock option expense (unaudited)		—		—		95		—			—			—			—		—		95
Balances at March 31, 2010 (unaudited)		20,845,424	$	208	$	269,880	$	121,754			(164,162	)	$	(3,946	)	$	3,946	$	31,979	$	423,821

See notes to consolidated financial statements.

7

FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS — (UNAUDITED)

(Dollars in thousands)

	Three Months Ended March 31,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	13,717		$	13,704
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		1,777			1,956
Provision for loan losses		2,010			1,761
Securities premium amortization (discount accretion), net		914			256
Gain on sale of assets, net		(4	)		(714	)
Deferred federal income tax expense (benefit)		—			(2	)
Trading security activity, net		—			(37,204	)
Loans originated for resale		(20,985	)		(65,914	)
Proceeds from sales of loans held for resale		22,752			106,933
Change in other assets		958			8,580
Change in other liabilities		3,518			7,381
Total adjustments		10,940			23,033
Net cash provided by operating activities		24,657			36,737
CASH FLOWS FROM INVESTING ACTIVITIES:
Activity in available-for-sale securities:
Sales		3,219			5,309
Maturities		44,864			75,068
Purchases		(160,617	)		(33,499	)
Activity in held-to-maturity securities — maturities		3,795			3,408
Net decrease in loans		11,633			43,410
Purchases of bank premises and equipment and computer software		(2,985	)		(804	)
Proceeds from sale of other assets		221			159
Net cash provided by (used in) investing activities		(99,870	)		93,051
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in noninterest-bearing deposits		(31,767	)		(27,684	)
Net increase (decrease) in interest-bearing deposits		37,124			(33,354	)
Net increase (decrease) in short-term borrowings		43,000			(69,251	)
Common stock transactions:
Proceeds from stock issuances		476			103
Dividends paid		(7,080	)		(7,072	)
Net cash provided by (used in) financing activities		41,753			(137,258	)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(33,460	)		(7,470	)
CASH AND CASH EQUIVALENTS, beginning of period		321,541			168,888
CASH AND CASH EQUIVALENTS, end of period	$	288,081		$	161,418
SUPPLEMENTAL INFORMATION AND NONCASH TRANSACTIONS
Interest paid	$	3,758		$	5,494
Federal income tax paid		—			—
Transfer of loans to foreclosed assets		1,096			2,141
Investment securities purchased but not settled		13,126			16,787

See notes to consolidated financial statements.

8

FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 — Basis of Presentation

The consolidated financial statements include the accounts of the Company, a Texas corporation and a financial holding company registered under the Bank Holding Company Act of 1956, or BHCA, and its wholly-owned subsidiaries: First Financial Bankshares of Delaware, Inc.; First Financial Investments of Delaware, Inc.; First Financial Bank, National Association, Abilene, Texas; First Financial Bank, Hereford, Texas; First Financial Bank, National Association, Sweetwater, Texas; First Financial Bank, National Association, Eastland, Texas; First Financial Bank, National Association, Cleburne, Texas; First Financial Bank, National Association, Stephenville, Texas; First Financial Bank, National Association, San Angelo, Texas; First Financial Bank, National Association, Weatherford, Texas; First Financial Bank, National Association, Southlake, Texas; First Financial Bank, National Association, Mineral Wells, Texas; First Technology Services, Inc.; First Financial Trust & Asset Management Company, National Association; First Financial Investments, Inc.; and First Financial Insurance Agency, Inc.

Through our subsidiary banks, we conduct a full-service commercial banking business. Our service centers are located primarily in North Central and West Texas. Considering the branches and locations of all our bank subsidiaries, as of March 31, 2010, we had 50 financial centers across Texas, with ten locations in Abilene, two locations in Cleburne, three locations in Stephenville, three locations in Granbury, two locations in San Angelo, three locations in Weatherford, and one location each in Mineral Wells, Hereford, Sweetwater, Eastland, Ranger, Rising Star, Southlake, Aledo, Willow Park, Brock, Alvarado, Burleson, Keller, Trophy Club, Boyd, Bridgeport, Decatur, Roby, Trent, Merkel, Clyde, Moran, Albany, Midlothian, Glen Rose, Odessa and Fort Worth. Our trust subsidiary has six locations in Abilene, San Angelo, Stephenville, Sweetwater, Fort Worth and Odessa, all in Texas.

In the opinion of management, the unaudited consolidated financial statements reflect all adjustments necessary for a fair presentation of the Company’s financial position and unaudited results of operations and should be read in conjunction with the Company’s consolidated financial statements, and notes thereto, for the year ended December 31, 2009. All adjustments were of a normal recurring nature. However, the results of operations for the three months ended March 31, 2010, are not necessarily indicative of the results to be expected for the year ending December 31, 2010, due to seasonality, changes in economic conditions and loan credit quality, interest rate fluctuations, regulatory and legislative changes and other factors. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted under SEC rules and regulations. The Company evaluated subsequent events for potential recognition and/or disclosure through the date the consolidated financial statements were issued.

Goodwill and other intangible assets are evaluated annually for impairment as of the end of the second quarter. No such impairment has been noted in connection with these evaluations.

Note 2 — Earnings Per Share

Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of shares outstanding during the periods presented. In computing diluted earnings per common share for the three months ended March 31, 2010 and 2009, the Company assumes that all dilutive outstanding options to purchase common stock have been exercised at the beginning of the period (or the time of issuance, if later). The dilutive effect of the outstanding options is reflected by application of the treasury stock method, whereby the proceeds from the exercised options are assumed to be used to purchase common stock at the average market price during the respective periods. The

9

weighted average common shares outstanding used in computing basic earnings per common share for the three months ended March 31, 2010 and 2009, were 20,834,972 and 20,801,681 shares respectively. The weighted average common shares outstanding used in computing fully diluted earnings per common share for the three months ended March 31, 2010 and 2009, were 20,867,778 and 20,847,967, respectively.

Note 3 — Securities

A summary of available-for-sale and held-to-maturity securities is as follows (in thousands):

	March 31, 2010
			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost Basis		Holding Gains		Holding Losses			Fair Value
Securities held-to-maturity:
Obligations of state and political subdivisions	$	10,893	$	339	$	(1	)	$	11,231
Mortgage-backed securities		585		15		—			600
Total debt securities held-to-maturity	$	11,478	$	354	$	(1	)	$	11,831
Securities available-for-sale:
U. S. Treasury Securities and obligations of U.S. government sponsored-enterprises and agencies	$	355,585	$	10,429	$	(174	)	$	365,840
Obligations of state and political subdivisions		450,045		20,592		(354	)		470,283
Corporate bonds and other		59,883		4,871		—			64,754
Mortgage-backed securities		473,474		21,930		(51	)		495,353
Total securities available-for-sale	$	1,338,987	$	57,822	$	(579	)	$	1,396,230

	December 31, 2009
			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost Basis		Holding Gains		Holding Losses			Fair Value
Securities held-to-maturity:
Obligations of state and political subdivisions	$	14,652	$	392	$	(6	)	$	15,038
Mortgage-backed securities		621		16		(1	)		636
Total debt securities held-to-maturity	$	15,273	$	408	$	(7	)	$	15,674
Securities available-for-sale:
Obligations of U.S. government sponsored-enterprises and agencies	$	260,018	$	12,050	$	—		$	272,068
Obligations of state and political subdivisions		437,550		18,643		(561	)		455,632
Corporate bonds and other		73,858		5,028		—			78,886
Mortgage-backed securities		442,823		20,995		(300	)		463,518
Total securities available-for-sale	$	1,214,249	$	56,716	$	(861	)	$	1,270,104

10

The Company invests in mortgage-backed securities that have expected maturities that differ from their contractual maturities. These differences arise because borrowers may have the right to call or prepay obligations with or without a prepayment penalty. These securities include collateralized mortgage obligations (CMOs) and other asset backed securities. The expected maturities of these securities at March 31, 2010, were computed by using scheduled amortization of balances and historical prepayment rates. At March 31, 2010 and 2009, the Company did not hold any CMOs that entail higher risks than standard mortgage-backed securities.

The amortized cost and estimated fair value of debt securities at March 31, 2010, by contractual and expected maturity, are shown below (in thousands):

	Held-to-Maturity				Available-for-Sale
	Amortized		Estimated		Amortized		Estimated
	Cost Basis		Fair Value		Cost Basis		Fair Value
Due within one year	$	6,657	$	6,758	$	128,303	$	130,930
Due after one year through five years		4,076		4,314		450,682		468,696
Due after five years through ten years		70		70		254,703		268,866
Due after ten years		90		89		31,825		32,385
Mortgage-backed securities		585		600		473,474		495,353
Total	$	11,478	$	11,831	$	1,338,987	$	1,396,230

During the three months ended March 31, 2010 and 2009, sales of investment securities that were classified as available-for-sale totaled $3.2 million and $5.3 million, respectively. Gross realized gains from 2010 and 2009 securities sales totaled $1 thousand and $249 thousand, respectively. There were no losses realized on securities sales during these periods. The specific identification method was used to determine cost on computing the realized gains.

The following tables disclose, as of March 31, 2010 and December 31, 2009, our available-for-sale and held-to- maturity securities that have been in a continuous unrealized-loss position for less than 12 months and those that have been in a continuous unrealized-loss position for 12 or more months (in thousands):

	Less than 12 Months				12 Months or Longer				Total
			Unrealized				Unrealized				Unrealized
March 31, 2010	Fair Value		Loss		Fair Value		Loss		Fair Value		Loss
U. S. Treasury securities and obligations of U.S. government sponsored-enterprises and agencies	$	60,087	$	174	$	—	$	—	$	60,087	$	174
Obligations of state and political subdivisions		12,413		195		4,268		160		16,681		355
Mortgage-backed securities		26,965		50		39		1		27,004		51
Total	$	99,465	$	419	$	4,307	$	161	$	103,772	$	580

	Less than 12 Months				12 Months or Longer				Total
			Unrealized				Unrealized				Unrealized
December 31, 2009	Fair Value		Loss		Fair Value		Loss		Fair Value		Loss
Obligations of state and political subdivisions	$	21,703	$	428	$	2,798	$	139	$	24,501	$	567
Mortgage-backed securities		27,619		300		82		1		27,701		301
Total	$	49,322	$	728	$	2,880	$	140	$	52,202	$	868

11

The number of investment positions in this unrealized loss position totaled 66 at March 31, 2010. We do not believe these unrealized losses are “other than temporary” as (1) we do not have the intent to sell our securities prior to recovery and/or maturity and (2) it is more likely than not that we will not have to sell our securities prior to recovery and/or maturity. The unrealized losses noted are interest rate related due to the level of interest rates at March 31, 2010. We have reviewed the ratings of the issuers and have not identified any issues related to the ultimate repayment of principal as a result of credit concerns on these securities. Our mortgage related securities are backed by GNMA, FNMA and FHLMC or are collateralized by securities backed by these agencies.

As of March 31, 2009, trading securities totaled $93.2 million. No amounts were held in trading securities at March 31, 2010. The trading securities portfolio is a government securities money market fund comprised primarily of U.S. government agency securities and repurchase agreements collateralized by U.S. government agency securities. The trading securities are carried at estimated fair value with unrealized gains and losses included in earnings. The Company invested in trading securities in 2008 to improve its yield on daily funds and to lower its exposure on Federal funds. However, due to significantly lower interest rates, the Company has deployed these funds into our investment portfolio and into certificates of deposit at unaffiliated banks.

Note 4 — Loans And Allowance for Loan Losses

Major classifications of loans are as follows (dollars in thousands):

	March 31,				December 31,
	2010		2009		2009
Commercial, financial and agricultural	$	457,377	$	460,318	$	508,431
Real estate — construction		89,051		152,100		77,711
Real estate — mortgage		782,725		673,625		752,735
Consumer		169,848		193,509		175,492
Total Loans	$	1,499,001	$	1,479,552	$	1,514,369

Included in real estate-mortgage above are $2.6 million and $4.3 million, respectively, in loans held for sale at March 31, 2010 and December 31, 2009 in which the carrying amounts approximate fair value. Included in real estate-mortgage and consumer loans above are $4.5 million and $9.9 million, respectively, in loans held for sale at March 31, 2009, in which the carrying amounts approximate fair value.

The Company’s recorded investment in impaired loans and the related valuation allowance are as follows (dollars in thousands):

March 31, 2010				March 31, 2009				December 31, 2009
Recorded		Valuation		Recorded		Valuation		Recorded		Valuation
Investment		Allowance		Investment		Allowance		Investment		Allowance
$	16,874	$	3,407	$	9,606	$	2,241	$	18,450	$	3,340

12

The allowance for loan losses as of March 31, 2010 and 2009 and December 31, 2009, is presented below. The level of the allowance reflects our periodic evaluation of general economic conditions, the financial condition of our borrowers, the value and liquidity of collateral, delinquencies, prior loan loss experience, and the results of periodic reviews of the portfolio by our independent loan review department and regulatory examiners. Management has evaluated the adequacy of the allowance for loan losses by estimating the probable losses in various categories of the loan portfolio, which are identified below (in thousands):

	March 31,				December 31,
	2010		2009		2009
Allowance for loan losses provided for:
Loans specifically evaluated as impaired	$	3,407	$	2,241	$	3,340
Remaining portfolio		25,343		20,411		24,272
Total allowance for loan losses	$	28,750	$	22,652	$	27,612

Changes in the allowance for loan losses are summarized as follows (in thousands):

	Three Months Ended
	March 31, 2010			March 31, 2009
Balance at beginning of period	$	27,612		$	21,529
Add:
Provision for loan losses		2,010			1,761
Loan recoveries		187			255
Deduct:
Loan charge-offs		(1,059	)		(893	)
Balance at end of period	$	28,750		$	22,652

Nonaccrual, loans still accruing and past due 90 days or more, restructured loans and foreclosed assets are as follows (in thousands, except percentages):

	March 31,						December 31,
	2010			2009			2009
Nonaccrual loans	$	17,775		$	9,606		$	18,540
Loans still accruing and past due 90 days or more		290			94			15
Restructured loans		—			—			—
Foreclosed assets		4,444			4,415			3,533
Total	$	22,509		$	14,115		$	22,088
As a % of total loans and foreclosed assets		1.50	%		0.95	%		1.46	%
As a % of total assets		0.67	%		0.45	%		0.67	%

Note 5 — Income Taxes

Income tax expense was $4.7 million for the first quarter in 2010 as compared to $5.0 million for the same period in 2009. Our effective tax rates on pretax income were 25.5% and 26.9% for the first quarters of 2010 and 2009, respectively. The effective tax rates differ from the statutory federal tax rate of 35% largely due to tax exempt interest income earned on certain investment securities and loans, the deductibility of dividends paid to our employee stock ownership plan and Texas state taxes.

13

The decreases in the effective tax rates for the three-month period ended March 31, 2010 over the same period in 2009 were largely the result of an increase in tax exempt income.

Note 6 — Stock Based Compensation

The Company grants incentive stock options for a fixed number of shares with an exercise price equal to the fair value of the shares at the date of grant to employees. No stock options have been granted in 2010. In May 2009, the Company granted incentive stock options to purchase 101,600 shares of Company common stock with an exercise price of $50.33 per share. The fair value of the options granted was estimated using the Black-Scholes options pricing model with the following weighted-average assumptions: risk-free interest rate of 3.24%; expected dividend yield of 2.66%; expected life of 5.79 years; and expected volatility of 41.64%.

The Company recorded stock option expense totaling approximately $95 thousand and $66 thousand, respectively, for the three-month periods ended March 31, 2010 and 2009.

The additional disclosure requirements under authoritative accounting guidance have been omitted due to immateriality.

Note 7 — Pension Plan

The Company’s defined benefit pension plan was frozen effective January 1, 2004, whereby no additional years of service will accrue to participants, unless the pension plan is reinstated at a future date. The pension plan covered substantially all of the Company’s employees. The benefits for each employee were based on years of service and a percentage of the employee’s qualifying compensation during the final years of employment. The Company’s funding policy was and is to contribute annually the amount necessary to satisfy the Internal Revenue Service’s funding standards. Contributions to the pension plan, prior to freezing the plan, were intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. As a result of the Pension Protection Act of 2006 (the “Protection Act”), the Company will be required to contribute amounts in future years to fund any shortfalls. The Company evaluated the provisions of the Protection Act as well as the Internal Revenue Service’s funding standards to develop a preliminary plan for funding in future years. The Company made a contribution totaling $1.0 million in March 2010 and $1.4 million in April 2009 and continues to evaluate future funding amounts.

Net periodic benefit costs totaling $100 thousand and $80 thousand were recorded, respectively, for the three months ended March 31, 2010 and 2009.

14

Note 8 — Recently Issued Authoritative Accounting Guidance

In June 2009, the FASB issued authoritative guidance to improve the information a reporting entity provides in its financial statements about transfers of financial assets, including the effect of a transfer on an entity’s financial position, financial performance and cash flows and the transferor’s continuing involvement in the transferred assets. The guidance eliminates the concept of a qualifying special-purpose entity and changes the guidance for evaluation for consolidation. This guidance became effective January 1, 2010 and did not have a significant impact on the Company’s financial position, results of operations or cash flows.

In 2010, the FASB issued authoritative guidance expanding disclosures related to fair value measurements including (i) the amounts of significant transfers of assets or liabilities between Levels 1 and 2 of the fair value hierarchy and the reasons for the transfers, (ii) the reasons for transfers of assets or liabilities in or out of Level 3 of the fair value hierarchy, with significant transfers disclosed separately, (iii) the policy for determining when transfers between levels of the fair value hierarchy are recognized and (iv) for recurring fair value measurements of assets and liabilities in Level 3 of the fair value hierarchy, a gross presentation of information about purchases, sales, issuances and settlements. The new guidance further clarifies that (i) fair value measurement disclosures should be provided for each class of assets and liabilities (rather than major category), which would generally be a subset of assets or liabilities within a line item in the statement of financial position and (ii) disclosures should be provided about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for each class of assets and liabilities included in Levels 2 and 3 of the fair value hierarchy. The disclosures related to the gross presentation of purchases, sales, issuances and settlements of assets and liabilities included in Level 3 of the fair value hierarchy will be required beginning January 1, 2011. The remaining disclosure requirements and clarifications made by the new guidance became effective on January 1, 2010.

Note 9 — Fair Value Disclosures

The authoritative accounting guidance for fair value measurements defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

The authoritative accounting guidance requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement costs). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the

15

asset or liability developed based on the best information available in the circumstances. In that regard, the authoritative guidance establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

• Level 1 Inputs — Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

• Level 2 Inputs — Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (for example, interest rates, volatilities, prepayment speeds, loss severities, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 2 investments consist primarily of obligations of U.S. government sponsored enterprises and agencies, obligations of state and municipal subdivisions, corporate bonds and mortgage backed securities.

• Level 3 Inputs — Significant unobservable inputs that reflect an entity’s own assumptions that market participants would use in pricing the assets or liabilities.

A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Securities classified as available for sale and trading are reported at fair value utilizing Level 1 and Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the United States Treasury (the “Treasury”) yield curve, live trading levels, trade execution data, market consensus prepayments speeds, credit information and the security’s terms and conditions, among other things.

16

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of March 31, 2010, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (dollars in thousands):

	Level 1		Level 2		Level 3		Total Fair
	Inputs		Inputs		Inputs		Value
Available for sale investment securities:
U. S. Treasury securities and obligations of U. S. government sponsored-enterprises and agencies	$	21,478	$	344,362	$	—	$	365,840
Obligations of state and political subdivisions		13,767		456,516		—		470,283
Corporate bonds		—		59,151		—		59,151
Mortgage-backed securities		9,847		485,506		—		495,353
Other securities		5,603		—		—		5,603
	$	50,695	$	1,345,535	$	—	$	1,396,230

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis, that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Financial assets and financial liabilities measured at fair value on a non-recurring basis include the following at March 31, 2010:

Impaired Loans — Impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral. Collateral values are estimated using Level 2 inputs based on observable market data or Level 3 input based on the discounting of the collateral. At March 31, 2010, impaired loans with a carrying value of $16.9 million were reduced by specific valuation allowances totaling $3.4 million resulting in a net fair value of $13.5 million, based on Level 3 inputs.

Loans Held for Sale — Loans held for sale are reported at the lower of cost or fair value. In determining whether the fair value of loans held for sale is less than cost when quoted market prices are not available, the Company considers investor commitments/contracts. These loans are considered Level 2 of the fair value hierarchy. At March 31, 2010, the Company’s mortgage loans held for sale were recorded at cost as fair value exceeded cost.

Certain non-financial assets and non-financial liabilities measured at fair value on a recurring and non-recurring basis include other real estate owned, goodwill and other intangible assets and other non-financial long-lived assets. Such amounts were not significant to the Company at March 31, 2010.

The Company is required under authoritative accounting guidance to disclose the estimated fair value of their financial instrument assets and liabilities including those subject to the requirements discussed above. For the Company, as for most financial institutions, substantially all of its assets and liabilities are considered financial instruments, as defined. Many of the Company’s financial instruments, however, lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction.

The estimated fair value amounts of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

17

In addition, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates that must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values.

Financial instruments with stated maturities have been valued using a present value discounted cash flow with a discount rate approximating current market for similar assets and liabilities. Financial instrument liabilities with no stated maturities have an estimated fair value equal to both the amount payable on demand and the carrying value.

The carrying value and the estimated fair value of the Company’s contractual off-balance-sheet unfunded lines of credit, loan commitments and letters of credit, which are generally priced at market at the time of funding, are not material.

The estimated fair values and carrying values of all financial instruments under current authoritative guidance at March 31, 2010, were as follows (in thousands):

	Carrying		Estimated
	Value		Fair Value
Cash and due from banks	$	95,234	$	95,234
Interest-bearing deposits in banks		192,848		192,848
Held to maturity securities		11,478		11,831
Available for sale securities		1,396,230		1,396,230
Loans		1,499,001		1,499,548
Accrued interest receivable		18,127		18,127
Deposits with stated maturities		768,725		770,972
Deposits with no stated maturities		1,921,389		1,921,389
Short term borrowings		189,095		189,095
Accrued interest payable		1,178		1,178

18

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When used in this Form 10-Q, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “predict,” “project,” and similar expressions, as they relate to us or management, identify forward-looking statements. These forward-looking statements are based on information currently available to our management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors, including, but not limited to, those listed in “Item 1A- Risk Factors” in our Annual Report on Form 10-K and the following:

• general economic conditions, including our local and national real estate markets and employment trends;

• volatility and disruption in national and international financial markets;

• legislative, tax and regulatory actions and reforms;

• political instability;

• the ability of the Federal government to deal with the national economic slowdown and the effect of stimulus packages enacted by Congress as well as future stimulus packages, if any;

• competition from other financial institutions and financial holding companies;

• the effects of and changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System;

• changes in the demand for loans;

• fluctuations in the value of collateral securing our loan portfolio and in the level of the allowance for loan losses;

• the accuracy of our estimates of future loan losses;

• the accuracy of our estimates and assumptions regarding the performance of our securities portfolio;

• soundness of other financial institutions with which we have transactions;

• inflation, interest rate, market and monetary fluctuations;

• changes in consumer spending, borrowing and savings habits;

• continued increases in FDIC deposit insurance assessments;

• our ability to attract deposits;

• consequences of continued bank mergers and acquisitions in our market area, resulting in fewer but much larger and stronger competitors;

• expansion of operations, including branch openings, new product offerings and expansion into new markets;

• acquisitions and integration of acquired businesses; and

• acts of God or of war or terrorism.

Such statements reflect the current views of our management with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this paragraph. We undertake no obligation to publicly update or otherwise revise any forward-looking statements, whether as a result of new information, future events or otherwise.

19

Introduction

As a multi-bank financial holding company, we generate most of our revenue from interest on loans and investments, trust fees, and service charges. Our primary source of funding for our loans and investments are deposits held by our subsidiary banks. Our largest expenses are interest on these deposits and salaries and related employee benefits. We usually measure our performance by calculating our return on average assets, return on average equity, our regulatory leverage and risk based capital ratios, and our efficiency ratio, which is calculated by dividing noninterest expense by the sum of net interest income on a tax equivalent basis and noninterest income.

The following discussion of operations and financial condition should be read in conjunction with the financial statements and accompanying footnotes included in Item 1 of this Form 10-Q as well as those included in the Company’s 2009 Annual Report on Form 10-K.

Critical Accounting Policies

We prepare consolidated financial statements based on the selection of certain accounting policies, generally accepted accounting principles and customary practices in the banking industry. These policies, in certain areas, require us to make significant estimates and assumptions.

We deem a policy critical if (1) the accounting estimate required us to make assumptions about matters that are highly uncertain at the time we make the accounting estimate; and (2) different estimates that reasonably could have been used in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, would have a material impact on the financial statements.

The following discussion addresses (1) our allowance for loan losses and our provision for loan losses and (2) our valuation of securities, which we deem to be our most critical accounting policies. We have other significant accounting policies and continue to evaluate the materiality of their impact on our consolidated financial statements, but we believe these other policies either do not generally require us to make estimates and judgments that are difficult or subjective, or it is less likely they would have a material impact on our reported results for a given period.

Allowance for Loan Losses. The allowance for loan losses is an amount we believe will be adequate to absorb probable losses on existing loans in which full collectibility is unlikely based upon our review and evaluation of the loan portfolio. The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries).

Our methodology is based on current authoritative accounting guidance, including guidance from the SEC. We also follow the guidance of the “Interagency Policy Statement on the Allowance for Loan and Lease Losses,” issued jointly by the Office of the Comptroller of the Currency (“OCC”), the Federal Reserve Board, the FDIC, the National Credit Union Administration and the Office of Thrift Supervision. We have developed a loan review methodology that includes allowances assigned to certain classified loans, allowances assigned based upon estimated loss factors and qualitative reserves. The level of the allowance reflects our periodic evaluation of general economic conditions, the financial condition of our borrowers, the value and liquidity of collateral, delinquencies, prior loan loss experience, and the results of periodic reviews of the portfolio by our independent loan review department and regulatory examiners.

20

Our allowance for loan losses is comprised of three elements: (i) specific reserves determined in accordance with current authoritative accounting guidance based on probable losses on specific classified loans; (ii) general reserves determined in accordance with current authoritative accounting guidance that consider historical loss rates; and (iii) a qualitative reserve determined in accordance with current authoritative accounting guidance based upon general economic conditions and other qualitative risk factors both internal and external to the Company. We regularly evaluate our allowance for loan losses to maintain an adequate level to absorb estimated probable loan losses inherent in the loan portfolio. Factors contributing to the determination of specific reserves include the credit-worthiness of the borrower, changes in the value of pledged collateral, and general economic conditions. All classified loans are specifically reviewed and a specific allocation is assigned based on the losses expected to be realized from those loans. For purposes of determining the general reserve, the loan portfolio less cash secured loans, government guaranteed loans and classified loans is multiplied by the Company’s historical loss rates. The qualitative reserves are determined by evaluating such things as current economic conditions and trends, including unemployment, changes in lending staff, policies or procedures, changes in credit concentrations, changes in the trends and severity of problem loans and changes in trends in volume and terms of loans.

Although we believe we use the best information available to make loan loss allowance determinations, future adjustments could be necessary if circumstances or economic conditions differ substantially from the assumptions used in making our initial determinations. A further downturn in the economy and employment could result in increased levels of nonperforming assets and charge-offs, increased loan loss provisions and reductions in income. Additionally, as an integral part of their examination process, bank regulatory agencies periodically review our allowance for loan losses. The bank regulatory agencies could require the recognition of additions to the loan loss allowance based on their judgment of information available to them at the time of their examination.

Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions and collection efforts, the borrower’s financial condition is such that collection of principal and interest is doubtful.

Our policy requires measurement of the allowance for an impaired collateral dependent loan based on the fair value of the collateral. Other loan impairments are measured based on the present value of expected future cash flows or the loan’s observable market price.

Valuation of Securities. The Company records its available-for-sale and trading securities portfolio at fair value.

Fair values of these securities are determined based on methodologies in accordance with current authoritative accounting guidance. Fair values are volatile and may be influenced by a number of factors, including market interest rates, prepayment speeds, discount rates, credit ratings and yield curves. Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on the quoted prices of similar instruments or an estimate of fair value by using a range of fair value estimates in the market place as a result of the illiquid market specific to the type of security.

21

When the fair value of a security is below its amortized cost, and depending on the length of time the condition exists and the extent the fair value is below amortized cost, additional analysis is performed to determine whether an other-than-temporary impairment condition exists. Available-for-sale and held-to-maturity securities are analyzed quarterly for possible other-than-temporary impairment. The analysis considers (i) whether we have the intent to sell our securities prior to recovery and/or maturity and (ii) whether it is more likely than not that we will have to sell our securities prior to recovery and/or maturity. Often, the information available to conduct these assessments is limited and rapidly changing, making estimates of fair value subject to judgment. If actual information or conditions are different than estimated, the extent of the impairment of the security may be different than previously estimated, which could have a material effect on the Company’s results of operations and financial condition.

Results of Operations

Performance Summary. Net earnings for the first quarter of 2010 were $13.7 million, virtually unchanged from the same period in 2009.

Basic earnings per share for the first quarter of 2010 were unchanged from the same quarter last year at $0.66. The return on average assets was 1.68% for the first quarter of 2010, as compared to 1.76% for the same quarter of 2009. The return on average equity was 13.30% for the first quarter of 2010 as compared to 14.59% for the same quarter of 2009.

Net Interest Income. Net interest income is the difference between interest income on earning assets and interest expense on liabilities incurred to fund those assets. Our earning assets consist primarily of loans and investment securities. Our liabilities to fund those assets consist primarily of noninterest-bearing and interest-bearing deposits.

Tax-equivalent net interest income was $35.2 million for the first quarter of 2010, as compared to $34.2 million for the same period last year. The increase in 2010 compared to 2009 was largely attributable to (i) the decrease in the rate paid on interest-bearing liabilities in an amount greater than the decrease in rates earned on interest earning assets and (ii) an increase in the volume of earning assets. Average earning assets increased $139.9 million for the first quarter of 2010 over the same period in 2009. Average short-term investments and average tax exempt securities increased $187.4 million and $54.6 million, respectively, for the first quarter of 2010 over the first quarter of 2009, offsetting a decrease of $73.8 million in average loans. Average interest bearing liabilities increased $69.6 million for the first quarter of 2010, as compared to the same period in 2009. The yield on earning assets and rate paid on interest-bearing liabilities both decreased 29 basis points in the first quarter of 2010, primarily due to the effects of lower interest rates.

22

Table 1 allocates the change in tax-equivalent net interest income between the amount of change attributable to volume and to rate.

Table 1 — Changes in Interest Income and Interest Expense (in thousands):

	Three Months Ended March 31, 2010
	Compared to Three Months Ended
	March 31, 2009
	Change Attributable to						Total
	Volume			Rate			Change
Short-term investments	$	1,145		$	(816	)	$	329
Taxable investment securities (1)		(306	)		(466	)		(772	)
Tax-exempt investment securities (2)		843			(25	)		818
Loans (2) (3)		(1,095	)		458			(637	)
Interest income		587			(849	)		(262	)
Interest-bearing deposits		343			(1,585	)		(1,242	)
Short-term borrowings		(65	)		(33	)		(98	)
Interest expense		278			(1,618	)		(1,340	)
Net interest income	$	309		$	769		$	1,078

(1)	Trading securities are included in taxable investment securities.
(2)	Computed on a tax-equivalent basis assuming a marginal tax rate of 35%.
(3)	Nonaccrual loans are included in loans.

The net interest margin for the first quarter of 2010 was 4.69%, a decrease of seven basis points from the same period in 2009. The decrease is largely the result of the extended period of low short-term interest rates. The target Federal funds rate was reduced to a range of 0 to 25 basis points in December 2008. The low level of interest rates has reduced the yields on our short-term investments and investment securities as the proceeds from maturing investment securities have been invested at lower rates.

23

The net interest margin, which measures tax-equivalent net interest income as a percentage of average earning assets, is illustrated in Table 2.

Table 2 — Average Balances and Average Yields and Rates (in thousands, except percentages):

	Three months ended March 31,
	2010								2009
	Average			Income/		Yield/			Average			Income/		Yield/
	Balance			Expense		Rate			Balance			Expense		Rate
Assets
Short-term investments (1)	$	224,341		$	372		0.67	%	$	36,897		$	42		0.47	%
Taxable investment securities (2)(3)		876,515			8,966		4.09			904,931			9,738		4.30
Tax-exempt investment securities (3)(4)		453,855			6,978		6.15			399,250			6,160		6.17
Loans (4)(5)		1,493,321			22,619		6.14			1,567,101			23,256		6.02
Total earning assets		3,048,032			38,935		5.18			2,908,179			39,196		5.47
Cash and due from banks		110,820								110,298
Bank premises and equipment, net		65,086								65,301
Other assets		48,440								38,068
Goodwill and other intangible assets, net		63,072								63,891
Allowance for loan losses		(28,420	)							(22,071	)
Total assets	$	3,307,030							$	3,163,666
Liabilities and Shareholders’ Equity
Interest-bearing deposits	$	1,894,085		$	3,535		0.76	%	$	1,767,060		$	4,777		1.10	%
Short-term borrowings		173,763			164		0.38			231,224			261		0.46
Total interest-bearing liabilities		2,067,848			3,699		0.73			1,998,284			5,038		1.02
Noninterest-bearing deposits		787,850								752,463
Other liabilities		33,082								32,102
Total liabilities		2,888,780								2,782,849
Shareholders’ equity		418,250								380,817
Total liabilities and shareholders’ equity	$	3,307,030							$	3,163,666
Net interest income				$	35,236							$	34,158
Rate Analysis:
Interest income/earning assets							5.18	%							5.47	%
Interest expense/earning assets							0.49								0.71
Net yield on earning assets							4.69	%							4.76	%

(1)	Short-term investments are comprised of Federal funds sold and interest-bearing deposits in banks.
(2)	Trading securities are included in taxable investment securities.
(3)	Average balances include unrealized gains and losses on available-for-sale securities.
(4)	Computed on a tax-equivalent basis assuming a marginal tax rate of 35%.
(5)	Nonaccrual loans are included in loans.

Noninterest Income. Noninterest income for the first quarter of 2010 was $11.1 million, a decrease of $426 thousand, or 3.7%, as compared to the same period in 2009. In the first quarter of 2009, we recorded a gain of $616 thousand on the sale of approximately $73.7 million in student loans, approximately 86% of our student loan portfolio. The Company suspended its student loan origination activities as a result of changes mandated by the Department of Education and Congress which moved the Student Loan program into direct lending with the government. At December 31, 2009, the Company held no student loans and had no student loan transactions in the first quarter of 2010. Noninterest income for the first quarter of 2009 also included a $249,000 net gain on securities transactions compared to only $1 thousand in the first quarter of 2010.

24

Partially offsetting these decreases were an increase in trust fees of $409 thousand and an increase of $302 thousand in ATM and credit card fees primarily as a result of increased use of debit cards. The increase in trust fees reflects the increase in the market values of the equity investments under management and higher oil and gas prices, plus an increase in assets under management over the prior year. The fair value of our trust assets managed, which are not reflected in our consolidated balance sheet, totaled $2.1 billion at March 31, 2010 as compared to $1.9 billion for the same date in 2009.

Table 3 — Noninterest Income (in thousands):

	Three Months Ended
	March 31,
			Increase
	2010		(Decrease)			2009
Trust fees	$	2,526	$	409		$	2,117
Service charges on deposit accounts		4,858		(283	)		5,141
Real estate mortgage operations		560		(28	)		588
Gain on sale of student loans		—		(616	)		616
ATM and credit card fees		2,511		302			2,209
Net gain on securities transactions		1		(248	)		249
Net gain (loss) on sale of foreclosed assets		11		170			(159	)
Other:
Check printing fees		67		(39	)		106
Safe deposit rental fees		171		(1	)		172
Exchange fees		22		2			20
Credit life and debt protection fees		35		(3	)		38
Brokerage commissions		56		(1	)		57
Interest on loan recoveries		37		(102	)		139
Miscellaneous income		255		12			243
Total other		643		(132	)		775
Total Noninterest Income	$	11,110	$	(426	)	$	11,536

Noninterest Expense. Total noninterest expense for the first quarter of 2010 was $23.3 million, an increase of $390 thousand, or 1.7%, as compared to the same period in 2009. An important measure in determining whether a banking company effectively manages noninterest expenses is the efficiency ratio, which is calculated by dividing noninterest expense by the sum of net interest income on a tax-equivalent basis and noninterest income. Lower ratios indicate better efficiency since more income is generated with a lower noninterest expense total. Our efficiency ratio for the first quarter of 2010 was 50.36% compared to 50.22% for the same period in 2009.

Salaries and employee benefits for the first quarter of 2010 totaled $12.7 million, an increase of $665 thousand, or 5.5%, as compared to 2009. The increase was largely the result of an increase in employee medical insurance expense and profit sharing plan expense.

25

All other categories of noninterest expense for the first quarter of 2010 totaled $10.7 million, a decrease of $274 thousand, or 2.5%, as compared to the same period in 2009. Equipment expense decreased $102 thousand primarily as a result of a lower level of depreciation charges. Correspondent bank service charges decreased $121 thousand as a result of an increase in compensating balances maintained with upstream correspondent banks. Partially offsetting these decreases was an increase in advertising expense of $155 thousand. The increase in advertising expense reflected marketing efforts to capitalize on our being recognized in January 2010 as the best-performing bank in the nation in the $3 billion-plus publicly traded category by Bank Director Magazine.

Table 4 — Noninterest Expense (in thousands):

	Three Months Ended
	March 31,
			Increase
	2010		(Decrease)			2009
Salaries	$	9,523	$	13		$	9,510
Medical		993		276			717
Profit sharing		740		245			495
Pension		100		20			80
401(k) match expense		323		21			302
Payroll taxes		883		61			822
Stock option expense		95		29			66
Total salaries and employee benefits		12,657		665			11,992
Net occupancy expense		1,578		(42	)		1,620
Equipment expense		1,838		(102	)		1,940
Intangible amortization		159		(63	)		222
FDIC assessment fees		988		37			951
Printing, stationery and supplies		429		(4	)		433
Correspondent bank service charges		191		(121	)		312
ATM and interchange expense		774		(27	)		801
Professional and service fees		693		(53	)		746
Other:
Data processing fees		113		7			106
Postage		346		(37	)		383
Advertising		402		155			247
Credit card fees		110		(10	)		120
Telephone		335		2			333
Public relations and business development		298		14			284
Directors’ fees		207		13			194
Audit and accounting fees		317		(10	)		327
Legal fees		147		6			141
Regulatory exam fees		211		(8	)		219
Travel		128		26			102
Courier expense		134		(21	)		155
Operational and other losses		149		6			143
Other real estate		98		(83	)		181
Other miscellaneous expense		1,036		41			995
Total other		4,031		101			3,930
Total Noninterest Expense	$	23,338	$	391		$	22,947

26

Income Taxes. Income tax expense was $4.7 million for the first quarter in 2010 as compared to $5.0 million for the same period in 2009. Our effective tax rates on pretax income were 25.5% and 26.9% for the first quarters of 2010 and 2009, respectively. The effective tax rates differ from the statutory federal tax rate of 35% largely due to tax exempt interest income earned on certain investment securities and loans, the deductibility of dividends paid to our employee stock ownership plan and Texas state taxes.

The decreases in the effective tax rates for the first quarter period ended March 31, 2010 over the same periods in 2009 were largely the result of an increase in tax exempt income.

Balance Sheet Review

Loans. Our portfolio is comprised of loans made to businesses, professionals, individuals, and farm and ranch operations located in the primary trade areas served by our subsidiary banks. Real estate loans represent loans primarily for new home construction and owner-occupied real estate. The structure of loans in the real estate mortgage classification generally provides repricing intervals to minimize the interest rate risk inherent in long-term fixed rate loans. As of March 31, 2010, total loans were $1.50 billion, an increase of $19.4 million, as compared to March 31, 2009. As compared to March 31, 2009, commercial, financial and agricultural loans decreased $2.9 million, real estate construction loans decreased $63.0 million, real estate mortgage loans increased $109.1 million, and consumer loans decreased $23.7 million. Loans averaged $1.49 billion during the first quarter of 2010, a decrease of $73.8 million from the prior year average balances.

Table 5 — Composition of Loans (in thousands):

	March 31,				December 31,
	2010		2009		2009
Commercial, financial and agricultural	$	457,377	$	460,318	$	508,431
Real estate — construction		89,051		152,100		77,711
Real estate — mortgage		782,725		673,625		752,735
Consumer		169,848		193,509		175,492
	$	1,499,001	$	1,479,552	$	1,514,369

At March 31, 2010, our real estate loans represent approximately 58.1% of our loan portfolio and are comprised of (i) commercial real estate loans of 33.9%, generally owner occupied, (ii) 1-4 family residence loans of 34.2%, (iii) residential development and construction loans of 8.3%, which includes our custom and speculation home construction loans, (iv) commercial development and construction loans of 3.9% and (v) other loans of 19.7%.

Asset Quality. Loan portfolios of each of our subsidiary banks are subject to periodic reviews by our centralized independent loan review group as well as periodic examinations by state and federal bank regulatory agencies. Loans are placed on nonaccrual status when, in the judgment of management, the collectibility of principal or interest under the original terms becomes doubtful. Nonperforming assets, which are comprised of nonperforming loans, loans still accruing and past due 90 days or more and foreclosed assets, were $22.5 million at March 31, 2010, as compared to $14.1 million at March 31, 2009. As a percent of loans and foreclosed assets, nonperforming assets were 1.50% at March 31,

27

2010, as compared to 0.95% at March 31, 2009. The increased level of nonperforming assets is a result of a slowing real estate market and national recession.

Table 6 — Nonaccrual Loans, Loans Still Accruing and Past Due 90 Days or More, Restructured Loans and Foreclosed Assets (in thousands, except percentages):

	March 31,						December 31,
	2010			2009			2009
Nonaccrual loans	$	17,775		$	9,606		$	18,540
Loans still accruing and past due 90 days or more		290			94			15
Restructured loans		—			—			—
Foreclosed assets		4,444			4,415			3,533
Total	$	22,509		$	14,115		$	22,088
As a % of loans and foreclosed assets		1.50	%		0.95	%		1.46	%
As a % of total assets		0.67	%		0.45	%		0.67	%

The majority of our nonaccrual loans are in our bank subsidiaries closer to the Dallas-Fort Worth metroplex where we have experienced more credit deterioration in our loan portfolio. The major categories of nonaccrual loans at March 31, 2010 are (i) 1-4 family residences (47.0%), (ii) ranches (18.5%) and (iii) lots for development (19.6%).

We record interest payments received on impaired loans as interest income unless collections of the remaining recorded investment are placed on nonaccrual, at which time we record payments received as reductions of principal. Interest income amounts related to these non-accrual loans were not significant for the first quarter periods ended March 31, 2010 and 2009.

Provision and Allowance for Loan Losses. The allowance for loan losses is the amount we determine as of a specific date to be adequate to absorb probable losses on existing loans in which full collectability is unlikely based on our review and evaluation of the loan portfolio. For a discussion of our methodology, see “Critical Accounting Policies — Allowance for Loan Losses” earlier in this section. The provision for loan losses was $2.0 million for the first quarter of 2010, as compared to $1.8 million for the first quarter of 2009. The increase in the provision in 2010 was due to concern for the continuing national recession and a higher level of nonperforming assets. As a percent of average loans, net loan charge-offs were 0.24% for the first quarter of 2010 compared to 0.17% during the first quarter of 2009. The allowance for loan losses as a percent of loans was 1.92% as of March 31, 2010, as compared to 1.53% as of March 31, 2009. Included in Table 7 is further analysis of our allowance for loan losses compared to charge-offs.

28

Although we believe we use the best information available to make loan loss allowance determinations, future adjustments could be necessary if circumstances or economic conditions differ substantially from the assumptions used in making our initial determinations. The current downturn in the economy or higher unemployment could result in increased levels of nonperforming assets and charge-offs and increased loan loss provisions, with corresponding reductions in net income. Additionally, as an integral part of their examination process, bank regulatory agencies periodically review the adequacy of our allowance for loan losses. The banking agencies could require the recognition of additions to the loan loss allowance based on their judgment of information available to them at the time of their examination.

Table 7 — Loan Loss Experience and Allowance for Loan Losses (in thousands, except percentages):

	Three Months Ended
	March 31,
	2010			2009
Balance at beginning of period	$	27,612		$	21,529
Charge-offs:
Commercial, financial and agricultural		93			315
Real Estate		680			192
Consumer		286			386
Total charge-offs		1,059			893
Recoveries:
Commercial, financial and agricultural		39			76
Real Estate		46			16
Consumer		102			163
Total recoveries		187			255
Net charge-offs		872			638
Provision for loan losses		2,010			1,761
Balance at March 31	$	28,750		$	22,652
Loans at period end		1,499,001			1,479,552
Average loans		1,493,321			1,567,101
Net charge-offs/average loans (annualized)		0.24	%		0.17	%
Allowance for loan losses/period-end loans		1.92			1.53
Allowance for loan losses/nonaccrual loans, past due 90 days still accruing and restructured loans		159.1			233.5

The ratio of our allowance to nonaccrual, past due 90 days still accruing and restructured loans has trended downward since 2007, as the economic conditions began to worsen. Although the ratio declined substantially in 2010 and 2009 from prior years when net charge-offs and nonperforming asset levels were historically low, management believes the allowance for loan losses is adequate at March 31, 2010 in spite of these trends.

29

Interest-Bearing Deposits in Banks. As of March 31, 2010, our interest-bearing deposits were $192.8 million compared with $2.6 million and $167.3 million as of March 31, 2009 and December 31, 2009, respectively. At March 31, 2010, interest-bearing deposits in banks included $80.0 million invested in FDIC-insured certificates of deposit, $66.6 million invested in money market accounts at a nonaffiliated regional bank, and $44.9 million maintained at the Federal Reserve Bank of Dallas. The increase in our interest-bearing deposits in banks was the result of several factors; including relatively flat loan demand, cash flows from maturing investment securities and a growth in deposits.

Trading Securities. As of March 31, 2009, trading securities totaled $93.2 million. No amounts were held in trading securities at March 31, 2010. The trading securities portfolio is a government securities money market fund comprised primarily of U.S. government agency securities and repurchase agreements collateralized by U.S. government agency securities. The trading securities are carried at estimated fair value with unrealized gains and losses included in earnings. The Company invested in trading securities in 2009 to improve its yield on daily funds and to lower its exposure on Federal funds. However, due to significantly lower interest rates, the Company has deployed these funds into our investment portfolio and into certificates of deposits at unaffiliated banks.

Available-for-Sale and Held-to-Maturity Securities. At March 31, 2010, securities with an amortized cost of $11.5 million were classified as securities held-to-maturity and securities with a fair value of $1.40 billion were classified as securities available-for-sale. As compared to December 31, 2009, the available for sale portfolio, carried at fair value, at March 31, 2010, reflected (i) an increase of $93.8 million in U.S. Treasury securities and obligations of U.S. government sponsored-enterprises and agencies, (ii) an increase of $14.7 million in obligations of states and political subdivisions, (iii) a $14.1 million decrease in corporate and other bonds, and (iv) a $31.8 million increase in mortgage-backed securities. Our mortgage related securities are backed by GNMA, FNMA or FHLMC or are collateralized by securities guaranteed by these agencies.

30

Table 8 — Composition of Available-for-Sale and Held-to-Maturity Securities (dollars in thousands):

	March 31, 2010
			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost Basis		Holding Gains		Holding Losses			Fair Value
Securities held-to-maturity:
Obligations of state and political subdivisions	$	10,893	$	339	$	(1	)	$	11,231
Mortgage-backed securities		585		15		—			600
Total debt securities held-to-maturity	$	11,478	$	354	$	(1	)	$	11,831
Securities available-for-sale:
U.S. Treasury securities and obligations of U.S. government sponsored-enterprises and agencies	$	355,585	$	10,429	$	(174	)	$	365,840
Obligations of state and political subdivisions		450,045		20,592		(354	)		470,283
Corporate bonds and other		59,883		4,871		—			64,754
Mortgage-backed securities		473,474		21,930		(51	)		495,353
Total securities available-for-sale	$	1,338,987	$	57,822	$	(579	)	$	1,396,230

	December 31, 2009
			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost Basis		Holding Gains		Holding Losses			Fair Value
Securities held-to-maturity:
Obligations of state and political subdivisions	$	14,652	$	392	$	(6	)	$	15,038
Mortgage-backed securities		621		16		(1	)		636
Total debt securities held-to-maturity	$	15,273	$	408	$	(7	)	$	15,674
Securities available-for-sale:
Obligations of U.S. government sponsored-enterprises and agencies	$	260,018	$	12,050	$	—		$	272,068
Obligations of state and political subdivisions		437,550		18,643		(561	)		455,632
Corporate bonds and other		73,848		5,028		—			78,886
Mortgage-backed securities		442,823		20,995		(300	)		463,518
Total securities available-for-sale	$	1,214,249	$	56,716	$	(861	)	$	1,270,104

During the quarters ended March 31, 2010 and 2009, sales of investment securities that were classified as available-for-sale totaled $3.2 million and $5.3 million, respectively. Gross realized gains from 2010 and 2009 securities sales totaled $1 thousand and $249 thousand, respectively. There were no losses on securities sales during these periods. The specific identification method was used to determine cost on computing the realized gains.

31

Table 9 — Maturities and Yields of Available-for-Sale and Held-to-Maturity Securities Held at March 31, 2010 (in thousands, except percentages):

	Maturing
						After One Year					After Five Years
	One Year					Through					Through					After
	or Less					Five Years					Ten Years					Ten Years					Total
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
Held-to-Maturity:
Obligations of states and political subdivisions	$	6,657		7.24	%	$	4,076		6.95	%	$	70		6.08	%	$	90		6.72	%	$	10,893		7.12	%
Mortgage-backed securities		18		5.92			360		4.23			207		3.48			—		—			585		4.14
Total	$	6,675		7.23	%	$	4,436		6.74	%	$	277		4.13	%	$	90		6.72	%	$	11,478		6.96	%

	Maturing
						After One Year					After Five Years
	One Year					Through					Through					After
	or Less					Five Years					Ten Years					Ten Years					Total
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
Available-for-Sale:
U. S. Treasury securities and obligations of U.S. government sponsored-enterprises and agencies	$	87,562		3.42	%	$	278,278		3.09	%	$	—		—	%	$	—		—	%	$	365,840		3.17	%
Obligations of states and political subdivisions		23,297		6.56			152,347		5.62			262,254		6.22			32,385		6.43			470,283		6.05
Corporate bonds and other securities		20,071		3.56			38,071		5.42			6,612		7.08			—		—			64,754		4.77
Mortgage-backed securities		31,535		5.27			410,790		4.67			53,021		4.20			7		4.26			495,353		4.66
Total	$	162,465		4.19	%	$	879,486		4.37	%	$	321,887		5.90	%	$	32,392		6.43	%	$	1,396,230		4.73	%

	Maturing
						After One Year					After Five Years
	One Year					Through					Through					After
	or Less					Five Years					Ten Years					Ten Years					Total
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
Total Available-for-Sale and Held- to-Maturity Securities:
U. S. Treasury securities and obligations of U.S. government sponsored-enterprises and agencies	$	87,562		3.42	%	$	278,278		3.09	%	$	—		—	%	$	—		—	%	$	365,840		3.17	%
Obligations of states and political subdivisions		29,954		6.71			156,423		5.65			262,324		6.22			32,475		6.43			481,176		6.08
Corporate bonds and other securities		20,071		3.56			38,071		5.42			6,612		7.08			—		—			64,754		4.77
Mortgage-backed securities		31,553		5.27			411,150		4.67			53,228		4.19			7		4.26			495,938		4.66
Total	$	169,140		4.31	%	$	883,922		4.38	%	$	322,164		5.90	%	$	32,482		6.43	%	$	1,407,708		4.75	%

All yields are computed on a tax-equivalent basis assuming a marginal tax rate of 35%. Yields on available-for-sale securities are based on amortized cost. Maturities of mortgage-backed securities are based on contractual maturities and could differ due to prepayments of underlying mortgages. Maturities of other securities are reported at the sooner of maturity date or call date.

32

Table 10 — Disclosure of Available-for-Sale and Held-to-Maturity Securities with Continuous Unrealized Loss

The following tables disclose, as of March 31, 2010 and December 31, 2009, our available-for-sale and held-to-maturity securities that have been in a continuous unrealized-loss position for less than 12 months and those that have been in a continuous unrealized-loss position for 12 or more months (in thousands):

	Less than 12 Months				12 Months or Longer				Total
			Unrealized				Unrealized				Unrealized
March 31, 2010	Fair Value		Loss		Fair Value		Loss		Fair Value		Loss
U. S. Treasury securities and obligations of U.S. government sponsored-enterprises and agencies	$	60,087	$	174	$	—	$	—	$	60,087	$	174
Obligations of state and political subdivisions		12,413		195		4,268		160		16,681		355
Mortgage-backed securities		26,965		50		39		1		27,004		51
Total	$	99,465	$	419	$	4,307	$	161	$	103,772	$	580

	Less than 12 Months				12 Months or Longer				Total
			Unrealized				Unrealized				Unrealized
December 31, 2009	Fair Value		Loss		Fair Value		Loss		Fair Value		Loss
Obligations of state and political subdivisions	$	21,703	$	428	$	2,798	$	139	$	24,501	$	567
Mortgage-backed securities		27,619		300		82		1		27,701		301
Total	$	49,322	$	728	$	2,880	$	140	$	52,202	$	868

The number of investment positions in this unrealized loss position totaled 66 at March 31, 2010. We do not believe these unrealized losses are “other than temporary” as (i) we do not have the intent to sell our securities prior to recovery and/or maturity and (ii) it is more likely than not that we will not have to sell our securities prior to recovery and/or maturity. The unrealized losses noted are interest rate related due to the level of interest rates at March 31, 2010. We have reviewed the ratings of the issuers and have not identified any issues related to the ultimate repayment of principal as a result of credit concerns on these securities. Our mortgage related securities are guaranteed by GNMA, FNMA and FHLMC or are collateralized by securities backed by these agencies.

As of March 31, 2010, the investment portfolio had an overall tax equivalent yield of 4.75%, a weighted average life of 3.74 years and modified duration of 3.28 years.

Deposits. Deposits held by subsidiary banks represent our primary source of funding. Total deposits were $2.69 billion as of March 31, 2010, as compared to $2.52 billion as of March 31, 2009. Table 11 provides a breakdown of average deposits and rates paid for the first quarters of 2010 and 2009.

33

     Table 11 — Composition of Average Deposits (in thousands, except percentages):

	Three Months Ended March 31,
	2010					2009
	Average		Average			Average		Average
	Balance		Rate			Balance		Rate
Noninterest-bearing deposits	$	787,850		—	%	$	752,463		—	%
Interest-bearing deposits
Interest-bearing checking		684,997		0.29			633,021		0.38
Savings and money market accounts		453,970		0.35			431,070		0.48
Time deposits under $100,000		349,495		1.39			370,442		2.00
Time deposits of $100,000 or more		405,623		1.45			332,527		2.25
Total interest-bearing deposits		1,894,085		0.76	%		1,767,060		1.10	%
Total average deposits	$	2,681,935				$	2,519,521

Short-Term Borrowings. Included in short-term borrowings were federal funds purchased and securities sold under repurchase agreements of $171.4 million and $150.2 million at March 31, 2010 and 2009, respectively. Securities sold under repurchase agreements are generally with significant customers that require short-term liquidity for their funds which we pledge our securities that have a fair value equal to at least the amount of the short-term borrowing. The average balance of federal funds purchased and securities sold under repurchase agreements was $173.8 million and $231.2 million in the first quarters of 2010 and 2009, respectively. The average rates paid on federal funds purchased and securities sold under repurchase agreements were 0.38% and 0.46% for the first quarters of 2010 and 2009, respectively.

Capital Resources

We evaluate capital resources by our ability to maintain adequate regulatory capital ratios to do business in the banking industry. Issues related to capital resources arise primarily when we are growing at an accelerated rate but not retaining a significant amount of our profits or when we experience significant asset quality deterioration.

Total shareholders’ equity was $423.8 million, or 12.64% of total assets, at March 31, 2010, as compared to $381.5 million, or 12.22% of total assets, at March 31, 2009. Included in shareholders’ equity at March 31, 2010 and March 31, 2009, were $37.2 million and $22.6 million, respectively, in unrealized gains on investment securities available-for-sale, net of related income taxes. During the first quarter of 2010, total shareholders’ equity averaged $418.3 million, or 12.65% of average assets, as compared to $380.8 million, or 12.04% of average assets, during the same period in 2009.

Banking regulators measure capital adequacy by means of the risk-based capital ratio and leverage ratio. The risk-based capital rules provide for the weighting of assets and off-balance-sheet commitments and contingencies according to prescribed risk categories ranging from 0% to 100%. Regulatory capital is then divided by risk-weighted assets to determine the risk-adjusted capital ratios. The leverage ratio is computed by dividing shareholders’ equity less intangible assets by quarter-to-date average assets less intangible assets. Regulatory minimums for total risk-based and leverage ratios are 8.00% and 3.00%, respectively. As of March 31, 2010, our total risk-based and leverage capital ratios were 19.28% and 10.50%, respectively, as compared to total risk-based and leverage capital ratios of 18.05% and 10.01% as of March 31, 2009. We believe by all measurements our capital ratios remain well above regulatory requirements to be considered “well capitalized” by the regulators.

34

Interest Rate Risk. Interest rate risk results when the maturity or repricing intervals of interest-earning assets and interest-bearing liabilities are different. Our exposure to interest rate risk is managed primarily through our strategy of selecting the types and terms of interest-earning assets and interest-bearing liabilities that generate favorable earnings while limiting the potential negative effects of changes in market interest rates. We use no off-balance-sheet financial instruments to manage or hedge interest rate risk.

Each of our subsidiary banks has an asset liability management committee that monitors interest rate risk and compliance with investment policies; there is also a holding company-wide committee that monitors the aggregate Company’s interest rate risk and compliance with investment policies. The Company and each subsidiary bank utilize an earnings simulation model as the primary quantitative tool in measuring the amount of interest rate risk associated with changing market rates. The model quantifies the effects of various interest rate scenarios on projected net interest income and net income over the next twelve months. The model measures the impact on net interest income relative to a base case scenario of hypothetical fluctuations in interest rates over the next twelve months. These simulations incorporate assumptions regarding balance sheet growth and mix, pricing and the repricing and maturity characteristics of the existing and projected balance sheet.

As of March 31, 2010, the model simulations projected that 100 and 200 basis point increases in interest rates would result in positive variances in net interest income of 0.12% and 1.08%, respectively, relative to the base case over the next twelve months, while decreases in interest rates of 50 basis points would result in a positive variance in a net interest income of 0.11% relative to the base case over the next twelve months. The likelihood of a decrease in interest rates beyond 50 basis points as of March 31, 2010 is considered remote given current interest rate levels. These are good faith estimates and assume that the composition of our interest sensitive assets and liabilities existing at each year-end will remain constant over the relevant twelve month measurement period and that changes in market interest rates are instantaneous and sustained across the yield curve regardless of duration of pricing characteristics of specific assets or liabilities. Also, this analysis does not contemplate any actions that we might undertake in response to changes in market interest rates. We believe these estimates are not necessarily indicative of what actually could occur in the event of immediate interest rate increases or decreases of this magnitude. As interest-bearing assets and liabilities reprice in different time frames and proportions to market interest rate movements, various assumptions must be made based on historical relationships of these variables in reaching any conclusion. Since these correlations are based on competitive and market conditions, we anticipate that our future results will likely be different from the foregoing estimates, and such differences could be material.

Should we be unable to maintain a reasonable balance of maturities and repricing of our interest-earning assets and our interest-bearing liabilities, we could be required to dispose of our assets in an unfavorable manner or pay a higher than market rate to fund our activities. Our asset liability committees oversee and monitor this risk.

35

Liquidity

Liquidity is our ability to meet cash demands as they arise. Such needs can develop from loan demand, deposit withdrawals or acquisition opportunities. Potential obligations resulting from the issuance of standby letters of credit and commitments to fund future borrowings to our loan customers are other factors affecting our liquidity needs. Many of these obligations and commitments are expected to expire without being drawn upon; therefore the total commitment amounts do not necessarily represent future cash requirements affecting our liquidity position. The potential need for liquidity arising from these types of financial instruments is represented by the contractual notional amount of the instrument. Asset liquidity is provided by cash and assets which are readily marketable or which will mature in the near future. Liquid assets include cash, federal funds sold, and short-term investments in time deposits in banks. Liquidity is also provided by access to funding sources, which include core depositors and correspondent banks that maintain accounts with and sell federal funds to our subsidiary banks. Other sources of funds include our ability to borrow from short-term sources, such as purchasing federal funds from correspondents and sales of securities under agreements to repurchase, which amounted to $189.1 million at March 31, 2010, and an unfunded $25.0 million line of credit established with a nonaffiliated bank which matures on June 30, 2011. First Financial Bank, N. A., Abilene also has federal funds purchased lines of credit with two non-affiliated banks totaling $60.0 million. No amount was outstanding at March 31, 2010.

On December 30, 2009, we renewed our loan agreement, effective December 31, 2009, with The Frost National Bank. Under the loan agreement, as renewed and amended, we are permitted to draw up to $25.0 million on a revolving line of credit. Prior to June 30, 2011, interest is paid quarterly at Wall Street Journal Prime, and the line of credit matures June 30, 2011. If a balance exists at June 30, 2011, the principal balance converts to a term facility payable quarterly over five years and interest is paid quarterly at our election at Wall Street Journal Prime plus 50 basis points or LIBOR plus 250 basis points. The line of credit is unsecured. Among other provisions in the credit agreement, we must satisfy certain financial covenants during the term of the loan agreement, including, without limitation, covenants that require us to maintain certain capital, tangible net worth, loan loss reserve, non-performing asset and cash flow coverage ratio. In addition, the credit agreement contains certain operational covenants, that among others, restricts the payment of dividends above 55% of consolidated net income, limits the incurrence of debt (excluding any amounts acquired in an acquisition) and prohibits the disposal of assets except in the ordinary course of business. Management believes the Company was in compliance with financial covenants at March 31, 2010. Since 1995, we have historically declared dividends as a percentage of our consolidated net income in a range of 37% (low) in 1995 to 53% (high) in 2003 and 2006. There was no outstanding balance under the line of credit as of March 31, 2010, or December 31, 2009.

Given the strong core deposit base, relatively low loan to deposit ratios maintained at our subsidiary banks and dividend capacity of our subsidiary banks we consider our current liquidity position to be adequate to meet our short- and long-term liquidity needs.

In addition, we anticipate that any future acquisition of financial institutions, expansion of branch locations or offering of new products could also place a demand on our cash resources. Available cash at our parent company, which totaled $44.6 million at March 31, 2010, investment securities which totaled $14.1 million (of which 62% matures within two years and the remaining portion in 12 years), available dividends from subsidiary banks which totaled $37.1 million at March 31, 2010, utilization of available lines of credit, and future debt or equity offerings are expected to be the source of funding for these potential acquisitions or expansions. Existing cash resources at our subsidiary banks may also be used as a source of funding for these potential acquisitions or expansions.

36

Off-Balance Sheet Arrangements. We are a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include unfunded lines of credit, commitments to extend credit and federal funds sold and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in our consolidated balance sheets.

Our exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for unfunded lines of credit, commitments to extend credit and standby letters of credit is represented by the contractual notional amount of these instruments. We generally use the same credit policies in making commitments and conditional obligations as we do for on-balance-sheet instruments.

Unfunded lines of credit and commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, as we deem necessary upon extension of credit, is based on our credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant, and equipment and income-producing commercial properties.

Standby letters of credit are conditional commitments we issue to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The average collateral value held on letters of credit usually exceeds the contract amount.

Table 12 — Commitments as of March 31, 2010 (in thousands):

	Total Notional
	Amounts
	Committed
Unfunded lines of credit	$	254,359
Unfunded commitments to extend credit		53,357
Standby letters of credit		18,285
Total commercial commitments	$	326,001

We believe we have no other off-balance sheet arrangements or transactions with unconsolidated, special purpose entities that would expose us to liability that is not reflected on the face of the financial statements.

Parent Company Funding. Our ability to fund various operating expenses, dividends, and cash acquisitions is generally dependent on our own earnings (without giving effect to our subsidiaries), cash reserves and funds derived from our subsidiary banks. These funds historically have been produced by intercompany dividends and management fees that are limited to reimbursement of actual expenses. We anticipate that our recurring cash sources will continue to include dividends and management fees from our subsidiary banks. At March 31, 2010, approximately $37.1 million was available for the payment of intercompany dividends by the subsidiaries without the prior approval of regulatory agencies.

Dividends. Our long-term dividend policy is to pay cash dividends to our shareholders of between 40% and 55% of net earnings while maintaining adequate capital to support growth. The cash dividend payout ratios have amounted to 51.7% and 51.6% of net earnings, respectively, for the first quarter of 2010 and the same period in 2009. Given our current capital position and projected earnings and asset growth rates, we do not anticipate any significant change in our current dividend policy.

37

Each state bank that is a member of the Federal Reserve System and each national banking association is required by federal law to obtain the prior approval of the Federal Reserve Board and the OCC, respectively, to declare and pay dividends if the total of all dividends declared in any calendar year would exceed the total of (1) such bank’s net profits (as defined and interpreted by regulation) for that year plus (2) its retained net profits (as defined and interpreted by regulation) for the preceding two calendar years, less any required transfers to surplus. In addition, these banks may only pay dividends to the extent that retained net profits (including the portion transferred to surplus) exceed bad debts (as defined by regulation).

To pay dividends, we and our subsidiary banks must maintain adequate capital above regulatory guidelines. In addition, if the applicable regulatory authority believes that a bank under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice (which, depending on the financial condition of the bank, could include the payment of dividends), the authority may require, after notice and hearing, that such bank cease and desist from the unsafe practice. The Federal Reserve Board, the FDIC and the OCC have each indicated that paying dividends that deplete a bank’s capital base to an inadequate level would be an unsafe and unsound banking practice. The Federal Reserve Board, the OCC and the FDIC have issued policy statements that recommend that bank holding companies and insured banks should generally only pay dividends out of current operating earnings. In addition, under the Texas Finance Code, a Texas banking association may not pay a dividend that would reduce its outstanding capital and surplus unless it obtains approval of the Texas Banking Commissioner.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Management considers interest rate risk to be a significant market risk for the Company. See “Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Resources — Interest Rate Risk” for disclosure regarding this market risk.

Item 4. Controls and Procedures

As of March 31, 2010, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934. Our management, which includes our principal executive officer and our principal financial officer, does not expect that our disclosure controls and procedures will prevent all errors and all fraud.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints; additionally, the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based, in part, upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may

38

become inadequate due to changes in conditions; also the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Our principal executive officer and principal financial officer have concluded based on our evaluation of our disclosure controls and procedures, that our disclosure controls and procedures, as defined, under Rule 13a-15 of the Securities Exchange Act of 1934, are effective at the reasonable assurance level as of March 31, 2010.

Subsequent to our evaluation, there were no significant changes in internal controls or other factors that have materially affected, or are reasonably likely to materially affect, these internal controls.

39

PART II
OTHER INFORMATION

Item 6. Exhibits

The following exhibits are filed as part of this report:

3.1	—	Amended and Restated Certificate of Formation (incorporated by reference from Exhibit 3.1 of the Registrant’s Form 10-Q Quarterly Report for the quarter ended March 31, 2006).
3.2	—	Amended and Restated Bylaws, and all amendments thereto, of the Registrant (incorporated by reference from Exhibit 3.2 of the Registrant’s Form 10-K Annual Report for the ended December 31, 2008).
4.1	—	Specimen certificate of First Financial Common Stock (incorporated by reference from Exhibit 3 of the Registrant’s Amendment No. 1 to Form 8-A filed on Form 8-A/A No. 1 on January 7, 1994).
10.1	—	Executive Recognition Plan (incorporated by reference from Exhibit 10.1 of the Registrant’s Form 8-K Report filed July 3, 2006).
*10.2	—	1992 Incentive Stock Option Plan.
*10.3	—	2002 Incentive Stock Option Plan.
*10.4	—	Loan agreement dated December 31, 2004, between First Financial Bankshares, Inc. and The Frost National Bank.
10.5	—	First Amendment to Loan Agreement, dated December 28, 2005, between First Financial Bankshares, Inc. and The Frost National Bank (incorporated by reference from Exhibit 10.2 of the Registrant’s Form 8-K filed December 28, 2005).
10.6	—	Second Amendment to Loan Agreement, dated December 31, 2006, between First Financial Bankshares, Inc. and The Frost National Bank (incorporated by reference from Exhibit 10.3 of the Registrant’s Form 8-K filed December 31, 2006).
10.7	—	Third Amendment to Loan Agreement, dated December 31, 2007, between First Financial Bankshares, Inc. and The Frost National Bank (incorporated by reference from Exhibit 10.4 of the Registrant’s Form 8-K filed December 31, 2007).
10.8	—	Fourth Amendment to Loan Agreement, dated July 24, 2008, between First Financial Bankshares, Inc. and The Frost National Bank (incorporated by reference from Exhibit 10.10 of the Registrant’s Form 10-Q filed July 25, 2008).
10.9	—	Fifth Amendment to Loan Agreement, dated December 19, 2008, between First Financial Bankshares, Inc. and The Frost National Bank (incorporated by reference from Exhibit 10.6 of the Registrant’s Form 8-K filed December 22, 2008).
10.10	—	Sixth Amendment to Loan Agreement, dated June 16, 2009, signed June 30, 2009, between First Financial Bankshares, Inc. and The Frost National Bank (incorporated by reference from Exhibit 10.7 of the Registrant’s Form 8-K filed on June 30, 2009).
10.11	—	Seventh Amendment to Loan Agreement, dated December 30, 2009, between First Financial Bankshares, Inc. and The Frost National Bank (incorporated by reference from Exhibit 10.8 of the Registrant’s Form 8-K filed December 30, 2009).
*31.1	—	Rule 13a-14(a) / 15(d)-14(a) Certification of Chief Executive Officer of First Financial Bankshares, Inc.
*31.2	—	Rule 13a-14(a) / 15(d)-14(a) Certification of Chief Financial Officer of First Financial Bankshares, Inc.
*32.1	—	Section 1350 Certification of Chief Executive Officer of First Financial Bankshares, Inc.
*32.2	—	Section 1350 Certification of Chief Financial Officer of First Financial Bankshares, Inc.

* Filed herewith

40

SIGNATURES

Pursuant to the requirements 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.

	FIRST FINANCIAL BANKSHARES, INC.
Date: May 4, 2010	By:	/s/ F. Scott Dueser
		F. Scott Dueser
		President and Chief Executive Officer
Date: May 4, 2010	By:	/s/ J. Bruce Hildebrand
		J. Bruce Hildebrand
		Executive Vice President and Chief Financial Officer

41

EX-10.2

EXHIBIT 10.2

1992 INCENTIVE STOCK OPTION PLAN

FOR KEY EMPLOYEES OF

FIRST FINANCIAL BANKSHARES, INC.

AND ITS SUBSIDIARIES

FIRST FINANCIAL BANKSHARES, INC.

1992 INCENTIVE STOCK OPTION PLAN

1. Purpose.

     The purpose of the Plan is to attract and retain employees to First Financial Bankshares, Inc., a Texas corporation (the “Corporation”), and to its Subsidiaries (hereafter defined) and to provide such persons and employees of the Corporation and its Subsidiaries with a proprietary interest in the Corporation through the granting of Stock Options and related Stock Appreciation Rights that will

(a)	increase the interest of the employees in the Corporation’s welfare;
(b)	furnish an incentive to the employees to continue their services for the Corporation; and
(c)	provide a means through which the Corporation may attract able persons to enter its employ.

2. Definitions.

     For the purpose of this Plan, unless the context requires otherwise, the following terms shall have the meanings indicated:

(a)

“Board” means the board of directors of the Corporation.

(b)

“Change in Control” means the occurrence of any of the following events: (i) there shall be consummated (x) any consolidation or merger of the Corporation in which the Corporation is not the continuing or surviving corporation or pursuant to which shares of the Corporation’s Common Stock would be converted into cash, securities or other property, other than a merger of the Corporation in which the holders of the Corporation’s Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or (y) any sale, lease, exchange or other transfer (excluding transfer by way of pledge or hypothecation), in one transaction or a series of related transactions, of all, or substantially all, of the assets of the Corporation, (ii) the stockholders of the Corporation approve any plan or proposal for the liquidation or dissolution of the Corporation, (iii) any “person” (as such term is defined in Section 3(a)(9) or Section 13(d)(3) under the 1934 Act or any “group” (as such term is used in Rule 13d-5 promulgated under the 1934 Act), other than the Corporation or any successor of the Corporation or any Subsidiary of the Corporation or any employee benefit plan of the Corporation or any Subsidiary (including such plan’s trustee), becomes a beneficial owner for purposes of Rule 13d-3 promulgated under the 1934 Act, directly or indirectly, of securities of the Corporation representing 50.1% or more of the Corporation’s then outstanding securities having the right to vote in the election of directors, or (iv) during any period of two consecutive years, individuals

	who, at the beginning of such period constituted the entire Board, cease for any reason (other than death) to constitute a majority of the directors, unless the election, or the nomination for election, by the Corporation’s stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period.
(c)	“Code” means the Internal Revenue Code of 1986, as amended.
(d)	“Common Stock” means the common stock which the Corporation is currently authorized to issue or may in the future be authorized to issue.
(e)	“Corporation” means First Financial Bankshares, Inc., a Texas corporation.
(f)	“Date of Grant” means the effective date on which a Stock Option or related Stock Appreciation Right is awarded to an employee or director as set forth in the stock option agreement.
(g)	“1934 Act” means the Securities Exchange Act of 1934, as amended.

(h)	“Option Period” means the period during which a Stock Option or related Stock Appreciation Right may be exercised.
(i)	“Participant” means any employee or director of the Corporation or a Subsidiary who is, or who is proposed to be, a recipient of a Stock Option or related Stock Appreciation Right.
(j)	“Plan” means this Incentive Stock Option Plan as amended from time to time.
(k)	“Stock Appreciation Right” means a right to receive cash equal to the excess fair market value of the Common Stock granted to a Participant under this Plan.
(l)	“Stock Option” means an option to purchase Common Stock of the Corporation granted to a Participant under this Plan and which is intended to qualify as an incentive stock option under Section 422 of the Code.
(m)	“Subsidiary” means any corporation in an unbroken chain of corporations beginning with the Corporation if, at the time of the granting of the Stock Option or related Stock Appreciation Right, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain, and “Subsidiaries” means more than one of any such corporations.

3. Administration.

     Subject to the terms of this Paragraph 3, the Plan shall be administered by the Stock Option Committee (the “Committee”) of the Board which shall consist of at least three members. Any member of the Committee may be removed at any time, with or without cause, by resolution of the Board. Any vacancy occurring in the membership of the Committee may be filled by

-2-

appointment by the Board. Each member of the Committee, at the time of his appointment to the Committee and while he is a member thereof, must be “disinterested,” as defined in Rule 16b-3 promulgated under the 1934 Act or any predecessor provision thereto, as applicable.

     The Committee shall select one of its members to act as its Chairman, and shall make such rules and regulations for its operation as it deems appropriate. A majority of the Committee shall constitute a quorum and the act of a majority of the members of the Committee present at a meeting at which a quorum is present shall be the act of the Committee. Subject to the terms hereof, the Committee shall designate from time to time the key employees to whom Stock Options or Stock Appreciation Rights will be granted, interpret the Plan, prescribe, amend and rescind any rules and regulations necessary or appropriate for the administration of the Plan, and make such other determinations and, subject to the terms of the Plan, take such other action as it deems necessary or advisable. In this regard, the Committee shall consider and give appropriate weight to input from representatives of management of the Corporation regarding the contributions or potential contributions to the Corporation of certain of the employees or potential employees of the Corporation. Except as provided below, any interpretation, determination or other action made or taken by the Committee shall be final, binding and conclusive on all interested parties, including the Corporation and all Participants.

4. Eligibility.

     Any employee of the Corporation or its Subsidiaries whose judgment, initiative and efforts contributed or may be expected to contribute to a successful performance of the Corporation is eligible to participate in the Plan. Non-employee directors shall not be eligible to receive Stock Options under the Plan.

5. Shares Subject to Plan.

     The Board may not grant Stock Options or related Stock Appreciation Rights under the Plan for more than 100,000 shares of Common Stock of the Corporation (as may be adjusted in accordance with Section 22 hereof). Shares to be optioned and sold may be made available from either authorized but unissued Common Stock or Common Stock held by the Corporation in its treasury. Shares that by reason of the expiration of a Stock Option or otherwise are no longer subject to purchase pursuant to a Stock Option granted under the Plan may be reoffered under the Plan.

6. Stock Ownership Limitation for Options.

     No Stock Option may be granted to an employee who owns more than 10% of the total combined voting power of all classes of stock of the Corporation or its Subsidiaries. This limitation will not apply if the Stock Option price is at least 110% of the fair market value of the Common Stock on the Date of Grant and such Stock Option by its terms is not exercisable after the expiration of five (5) years from the Date of Grant.

7. Limitation on Exercises and Grants of Options.

     To the extent required by the Code, the exercise of Stock Options granted under the Plan shall be subject to the $100,000 calendar-year limit set forth in Section 422(d) of the Code.

-3-

     The aggregate fair market value (determined as of the Date of Grant) of the stock for which any Participant may be granted Stock Options in any calendar year under the Plan shall not exceed the sum of (i) $100,000, plus (ii) any “unused limit carryover” (as defined in Section 422A(c)(4) of the Code, as it provided prior to its being repealed in Section 321(a) of Public Law 99-514) to such year.

8. Allotment of Shares.

     The Committee shall determine the number of shares of Common Stock to be offered from time to time by grant of Stock Options or Stock Appreciation Rights to Participants under the Plan. The grant of a Stock Option or Stock Appreciation Right to a Participant shall not be deemed either to entitle the Participant to, or to disqualify the Participant from, participation in any other grant of Stock Options or Stock Appreciation Rights under the Plan.

9. Grant of Options and Stock Appreciation Rights.

     The grant of Stock Options or related Stock Appreciation Rights shall be evidenced by stock option agreements setting forth such terms and provisions as are approved by the Committee, but not inconsistent with the Plan, including provisions that may be necessary to assure that the Stock Option is an incentive stock option under the Code. The Corporation shall execute stock option agreements with the Participants after approval of the issuance of Stock Options or Stock Appreciation Rights. The Plan shall be submitted to the Corporation’s stockholders for approval; however, the Board may grant Stock Options or Stock Appreciation Rights under the Plan prior to the time of stockholder approval.

10. Option Price.

     The option price for each Stock Option shall not be less than 100% of the fair market value per share of the Common Stock on the Date of Grant. The Committee shall determine the fair market value of the Common Stock on the Date of Grant and shall set forth the determination in its minutes, using any reasonable valuation method.

11. Option Period for Options and Stock Appreciation Rights.

     The Option Period for each Stock Option and Stock Appreciation Right will begin and terminate on the dates specified by the Committee, but may not terminate later than ten years from the Date of Grant. No Stock Option or Stock Appreciation Right granted under the Plan may be exercised at any time after its term. The Committee may provide for exercise of Stock Options or Stock Appreciation Rights immediately or in installments and upon such other terms, conditions and restrictions as it may determine, including granting the Corporation the right to repurchase shares issued upon exercise of options.

12. Payment of Option Price.

     Full payment for shares purchased upon exercise of a Stock Option shall be made in cash, or at the option of the Committee by the Participant’s delivery to the Corporation of previously-acquired shares of Common Stock which have a fair market value equal to the option price, or in any combination of cash and shares of Common Stock having an aggregate fair market value equal to the option

-4-

price. In the event the Committee determines to permit a Participant to purchase shares pursuant to the exercise of an option hereunder with previously-acquired shares, the Committee may permit the Participant to use shares which he either purchased in the open market or acquired upon the exercise of options under the Plan or any other stock option plan of the Company, including options for which the purchase price was paid, in full or in part, with previously-acquired shares.

     No shares may be issued until full payment of the purchase price therefor has been made, and a Participant will have none of the rights of a stockholder until shares are issued to him.

13. Exercise of Option and Stock Appreciation Rights.

     Each Stock Option and any Stock Appreciation Right granted under the Plan may be exercised during the Option Period, at such times and in such amounts, in accordance with the terms and conditions and subject to such restrictions as are set forth in the applicable stock option agreements; except that no Stock Option or Stock Appreciation Right granted hereunder to a Participant shall be exercisable while there is outstanding any Stock Option or Stock Appreciation Right previously granted to a Participant. Except as provided in paragraph 16 below, no Stock Option or Stock Appreciation Right may be exercised at any time unless the Participant is employed by the Corporation or a Subsidiary and has continuously remained an employee at all times since the Date of Grant. If the Committee imposes conditions upon exercise, then subsequent to the Date of Grant the Committee may, also in its sole discretion, accelerate the date on which all or any portion of the Stock Options or related Stock Appreciation Rights may be exercised. In no event may a Stock Option be exercised or shares be issued pursuant to an option if any necessary listing of the shares on a stock exchange or any registration under state or federal securities laws required under the circumstances has not been accomplished.

14. Stock Appreciation Rights.

     Any Stock Option granted under the Plan may, in the discretion of the Committee, include a Stock Appreciation Right. Each Stock Appreciation Right shall be related to a specific Stock Option granted under the Plan, shall be granted concurrently with the Stock Option to which it relates and shall not be exercisable to any greater extent than the related Stock Option is exercisable.

     A Stock Appreciation Right shall entitle the Participant at his election to surrender to the Corporation the Stock Option, or portion thereof, as the Participant shall choose, and to receive from the Corporation in exchange therefor cash in an amount equal to the excess (if any) of the fair market value (as of the date of the exercise of the Stock Appreciation Right) of one share over the purchase price per share specified in such Stock Option, multiplied by the total number of shares called for by the Stock Option, or portion thereof, which is so surrendered. In the discretion of the Committee, the Corporation shall be entitled to elect instead to settle its obligation arising out of the exercise of a Stock Appreciation Right, by the distribution of that number of shares of Common Stock having an aggregate fair market value (as of the date of the exercise of the Stock Appreciation Right) equal to the amount of cash it would otherwise be obligated to pay, with a cash settlement to be made for any fractional share interests, or the Corporation may elect to settle such obligations in part with stock and in part with cash.

-5-

     The right of Participant to exercise a Stock Appreciation Right shall be canceled if and to the extent the related Stock Option is exercised. The right of a Participant to exercise a Stock Option shall be canceled if and to the extent that shares covered by such Stock Option are used to calculate cash or shares received upon exercise of a related Stock Appreciation Right.

     The fair market value of Common Stock on the date of exercise of a Stock Appreciation Right shall be determined as of such exercise date in the same manner as the fair market value of Common Stock on the Date of Grant of Stock is determined for purposes of paragraph 10 hereof.

15. Agreement to Serve.

     Each Participant granted a Stock Option hereunder shall, as one of the terms of the grant, as reflected in the stock option agreement, agree that he will remain in the service of the Corporation or of one of its Subsidiaries for a period of at least two years from the Date of Grant. Such service shall (subject to the provisions of paragraph 16 hereof and to the terms of any contract between the Corporation or any such Subsidiary and such employee) be at the pleasure of the Board and at such compensation as the Board or any committee thereof shall determine from time to time. Any termination of such Participant’s service during such period that is either (i) by the Corporation or such Subsidiary for cause, or (ii) voluntary on the part of the individual and without the written consent of the Corporation or such Subsidiary shall be deemed a violation by the Participant of such agreement. In the event of such violation, any Stock Option or Stock Appreciation Rights held by the Participant under the Plan, to the extent not theretofore exercised, shall terminate. Retirement at the normal retirement date as prescribed from time to time by the Corporation or such Subsidiary shall be deemed to be a termination of employment with consent.

16. Termination of Employment of Service.

     In the event a Participant shall cease to be employed by the Corporation or a Subsidiary, for any reason other than death, disability or retirement, such Participant’s Stock Options or related Stock Appreciation Rights may be exercised by the Participant for a period of three (3) months after the Participant’s termination of employment or service, as the case may be, or until expiration of the applicable Option Period (if sooner) to the extent of the shares with respect to which such Stock Options or related Stock Appreciation Rights could have been exercised by the Participant on the date of termination, and thereafter to the extent not so exercised, such Stock Options or related Stock Appreciation Rights shall terminate. In addition, a Participant’s Stock Options or related Stock Appreciation Rights may be exercised as follows in the event of such Participant’s death, disability or retirement:

(a) Death. In the event of death while employed, all Stock Options or related Stock Appreciation Rights outstanding shall be exercisable for a period of twelve (12) months after the Participant’s death or until expiration of the applicable Option Period (if sooner) to the extent of the shares with respect to which the Stock Option or related Stock Appreciation Rights could have been exercised by the

-6-

Participant on the date of the Participant’s death, and such Stock Option or related Stock Appreciation Rights may only be exercised by the personal representative of the Participant’s estate, or by the person who acquired the right to exercise the Stock Option or related Stock Appreciation Rights by bequest or inheritance or by reason of the Participant’s death; and

(b)

Disability or Retirement. In the event of termination of employment or service as the result of retirement or disability (as defined in Section 22(e) of the Code), all Stock Options or related Stock Appreciation Rights outstanding shall be exercisable by the Participant or his guardian for a period of twelve (12) months after such termination or until expiration of the applicable Option Period (if sooner) to the extent of the shares with respect to which the Stock Option or related Stock Appreciation Rights could have been exercised by the Participant on the date of such termination.

17. Disqualifying Disposition.

     If stock acquired upon exercise of a Stock Option is disposed of by a Participant prior to the expiration of either two years from the Date of Grant of such option or one year from the transfer of shares to the Participant pursuant to the exercise of such option, or in any other disqualifying disposition within the meaning of Section 422 of the Code, such Participant shall notify the Corporation in writing of the date and terms of such disposition. A disqualifying disposition by a Participant shall not affect the status of any other option granted under the Plan as an incentive stock option within the meaning of the Section 422 of the Code.

18. Non-Assignability.

     A Stock Option or a related Stock Appreciation Right granted to a Participant may not be transferred or assigned, other than (i) by will or the laws of descent and distribution or (ii) pursuant to the terms of a qualified domestic relations order (as defined in Section 411(a)(13) of the Code or Section 206(d)(3) of the Employee Retirement Income Security Act of 1974, as amended) provided that in the case of a Stock Option, such transfer or assignment may occur only to the extent it will not result in disqualifying such option as an incentive stock option under Section 422 of the Code, or any other successor provision. Subject to the foregoing, during a Participant’s lifetime, Stock Options granted to a Participant may be exercised only by the Participant or, subject to the terms hereof, by the Participant’s guardian or legal representative.

19. Amendment or Discontinuance.

     The Board may, without the consent of the Participants, alter, amend, revise, suspend or discontinue the Plan without obtaining approval of the Corporation’s shareholders, provide such action shall not (i) materially increase the benefits accruing to Participants under the Plan, (ii) materially increase the number of securities which may be issued under the Plan, or (iii) materially modify the requirements as to eligibility for Participation in the Plan. Subject to the foregoing limitations, the Board may amend the Plan or modify the agreements evidencing same in order to comply with any exemption from the operation of Section 16(b) of the 1934 Act.

-7-

20. Effect of the Plan.

     Neither the adoption of this Plan nor any action of the Board or the Committee shall be deemed to give any officer or employee any right to be granted a Stock Option to purchase Common Stock of the Corporation or any other rights except as may be evidenced by a stock option agreement, or any amendment thereto, duly authorized by the Board and executed on behalf of the Corporation and then only to the extent and upon the terms and conditions expressly set forth therein.

21. Term.

     Unless sooner terminated by action of the Board, the Plan will terminate on January 28, 2002, but Stock Options and Stock Appreciation Rights granted before that date will continue to be effective in accordance with their terms and conditions.

22. Recapitalization, Merger and Consolidation.

(a)	The existence of this Plan and Stock Options and Stock Appreciation Rights granted hereunder shall not affect in any way the right or power of the Corporation or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Corporation’s capital structure or its business, or any merger or consolidation of the Corporation, or any issue of bonds, debentures, preferred or preference stocks ranking prior to or otherwise affecting the Common Stock or the rights thereof (or any rights, options or warrants to purchase same), or the dissolution or liquidation of the Corporation, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.
(b)	The number of shares of Common Stock available under the Plan described in Section 5, the number of shares of Common Stock that may be purchased pursuant to Stock Options granted under the Plan, and the consideration payable per share upon exercise may be proportionately adjusted by the Board, in its sole discretion, for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decease in such shares, effected without receipt of consideration by the Corporation; provided, however, that any fractional shares resulting from any such adjustment shall be eliminated for the purposes of such adjustment.
(c)	Subject to any required action by the stockholders, if the Corporation shall be the surviving or resulting corporation in any merger or consolidation, any Stock Option and related Stock Appreciation Rights granted hereunder shall pertain to and apply to the securities or rights (including cash, property or assets) to which a holder of the number of shares of Common Stock subject to the Stock Option and related Stock Appreciation Rights would have been entitled.
(d)	In the event of any merger or consolidation pursuant to which the Corporation is not the surviving or resulting corporation, there shall be substituted for each share of

-8-

	Common Stock subject to the unexercised portions of such outstanding Stock Options and related Stock Appreciation Rights, that number of shares of each class of stock or other securities or that amount of cash, property or assets of the surviving or consolidated company which were distributed or distributable to the stockholder of the Corporation in respect to each share of Common Stock held by them, such outstanding Stock Options and related Stock Appreciation Rights to be thereafter exercisable for such stock securities, cash or property in accordance with their terms. Notwithstanding the foregoing, however, all such Stock Options and related Stock Appreciation Rights may be canceled by the Corporation as of the effective date of any such reorganization, merger or consolidation or of any dissolution or liquidation of the Corporation by giving notice to each holder thereof or his personal representative of its intention to do so and by permitting the purchase during the thirty (30) day period next preceding such effective date of all of the shares subject to such outstanding Stock Options and related Stock Appreciation Rights.
(e)	In the event that either sufficient shares of the Corporation’s Common Stock are purchased, or any tender, exchange or similar offer is commenced which would, if successful (i) result in any of the events described in subsections 22(c) and (d), (ii) materially alter the structure or business of the Corporation, or (iii) result in a Change in Control of the Corporation, then, notwithstanding any other provision in the Plan to the contrary, all unmatured installments of Stock Options and related Stock Appreciation Rights outstanding shall thereupon automatically be accelerated and exercisable in full. The determination of the Board that any of the foregoing conditions has been met shall be binding and conclusive on all parties.
(f)	Except as hereinbefore expressly provided, the issue by the Corporation of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Corporation convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to Stock Options or Stock Appreciation Rights granted pursuant to this Plan.
(g)	Upon the occurrence of each event requiring an adjustment of the exercise price or the number of shares purchasable pursuant to Stock Options or Stock Appreciation Rights granted pursuant to the terms of this Plan, the Corporation shall mail forthwith to each Participant a copy of its computation of such adjustment.

23. Liquidation or Dissolution.

     In case the Corporation shall, at any time while any Stock Option or Stock Appreciation Rights under this Plan shall be in force and remain unexpired, (i) sell all or substantially all its property, or (ii) dissolve, liquidate, or wind up its affairs, then each Participant may thereafter receive upon exercise hereof (in lieu of each share of Common Stock of the Corporation

-9-

which such Participant would have been entitled to receive) the same kind and amount of any securities or assets as may be issuable, distributable or payable upon any such sale, dissolution, liquidation, or winding up with respect to each share of Common Stock of the Corporation. If the Corporation shall, at any time prior to the expiration of any Stock Option, make any partial distribution of its assets, in the nature of a partial liquidation, whether payable in cash or in kind (but excluding the distribution of a cash dividend payable out of earned surplus and designated as such) then in such event the exercise prices then in effect with respect to each Stock Option shall be reduced, on the payment date of such distribution, in proportion to the percentage reduction in the tangible book value of the shares of the Corporation’s Common Stock (determined in accordance with generally accepted accounting principles) resulting by reason of such distribution.

24. Options in Substitution for Stock Options Granted by Other Corporations.

     Stock Options and related Stock Appreciation Rights may be granted under the Plan from time to time in substitution for such options held by employees of a corporation who become or are about to become employees of the Corporation or a Subsidiary as the result of a merger or consolidation of the employing corporation with the Corporation or a Subsidiary or the acquisition by either of the foregoing of stock of the employing corporation as the result of which it becomes a Subsidiary. The terms and conditions of the subsided Stock Options and related Stock Appreciation Rights so granted may vary from the terms and conditions set forth in this Plan to such extent as the Board at the time of grant may deem appropriate to conform, in whole or in part, to the provisions of the options in substitution for which they are granted.

25. Investment Intent.

     The Corporation may require that there be presented to and filed with it by any Participant under the Plan, such evidence as it may deem necessary to establish that the Stock Options granted or the shares of Common Stock to be purchased or transferred are being acquired for investment and not with a view to their distribution.

26. No Right to Continue Employment.

     Nothing in the Plan or the grant of any Stock Option and related Stock Appreciation Rights confers upon any employee the right to continue in the employ of the Corporation or interferes with or restricts in any way the right of the Corporation to discharge any employee at any time (subject to any contract rights of such employee).

27. Indemnification of Board and Committee.

     No member of the Board of the Committee, nor any officer or employee of the Corporation acting on behalf of the Board or the Committee, shall be personally liable for any action, determination or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Committee and each and any officer or employee of the Corporation acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Corporation in respect of any such action, determination or interpretation.

-10-

28. Tax and 1934 Act Requirements.

     The employee receiving shares issued upon the grant or exercise of any Stock Option or Stock Appreciation Right shall be required to pay the Corporation the amount of any taxes which the Corporation is required to withhold with respect to such shares of Common Stock. Such payments shall be required to be made prior to or concurrent with the cash payment or delivery of any certificate representing such shares of Common Stock. Such payments shall be required to be made prior to or concurrent with the cash payment or delivery of any certificate representing such shares of Common Stock. Such payment may be made in cash, by check, or through the delivery of shares of Common Stock which the employee owns or is entitled to receive after payment of the purchase price (which may be effected by the actual delivery of shares of Common Stock by the exercising employee or by the Corporation withholding a number of shares to be issued upon the exercise of the Stock Option), which shares have an aggregate fair market value equal to the required withholding payment, or any combination thereof. If an exercising Participant who is an officer, director or 10% shareholder of the Corporation (as determined by reference to Section 16(b) under the 1934 Act and the rules promulgated thereunder) elects to have withheld shares of Common Stock in an amount necessary to pay any such taxes, all applicable provisions of Rule 16b-3 promulgated under Section 16(b) of the 1934 Act necessary to exempt such withholding of shares from the operation of Section 16(b) of the 1934 Act as a “purchase” or “sale” thereunder shall first be satisfied.

29. Government Regulations.

     Notwithstanding any of the provisions hereof, or of any written agreements evidencing Stock Options or Stock Appreciation Rights granted hereunder, the obligation of the Corporation to sell and deliver shares shall be subject to all applicable laws, rules and regulations and to such approvals by any government agencies or national securities exchanges as may be required. The employee shall agree not to exercise any Stock Option or Stock Appreciation Right, and the Corporation shall not be obligated to issue any shares, if the exercise thereof or if the issuance of shares shall constitute a violation by the employee or the Corporation of any provision of any law or regulation of any governmental authority.

-11-

EX-10.3

Exhibit 10.3

FIRST FINANCIAL BANKSHARES, INC.
2002 INCENTIVE STOCK OPTION PLAN

1. Purpose.

     The purpose of the Plan is to attract and retain employees to First Financial Bankshares, Inc., a Texas corporation (the “Corporation”), and to its Subsidiaries (hereafter defined) and to provide such persons and employees of the Corporation and its Subsidiaries with a proprietary interest in the Corporation through the granting of Stock Options and related Stock Appreciation Rights that will

(a)	increase the interest of the employees in the Corporation’s welfare;
(b)	furnish an incentive to the employees to continue their services for the Corporation; and
(c)	provide a means through which the Corporation may attract able persons to enter its employ.

2. Definitions.

     For the purpose of this Plan, unless the context requires otherwise, the following terms shall have the meanings indicated:

(a)	“Board” means the board of directors of the Corporation.
(b)	“Change in Control” means the occurrence of any of the following events: (i) there shall be consummated (x) any consolidation or merger of the Corporation in which the Corporation is not the continuing or surviving corporation or pursuant to which shares of the Corporation’s Common Stock would be converted into cash, securities or other property, other than a merger of the Corporation in which the holders of the Corporation’s Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or (y) any sale, lease, exchange or other transfer (excluding transfer by way of pledge or hypothecation), in one transaction or a series of related transactions, of all, or substantially all, of the assets of the Corporation, (ii) the stockholders of the Corporation approve any plan or proposal for the liquidation or dissolution of the Corporation, (iii) any “person” (as such term is defined in Section 3(a)(9) or Section 13(d)(3) under the 1934 Act or any “group” (as such term is used in Rule 13d-5 promulgated under the 1934 Act), other than the Corporation or any successor of the Corporation or any Subsidiary of the Corporation or any employee benefit plan of the Corporation or any Subsidiary (including such plan’s trustee), becomes a beneficial owner for purposes of Rule 13d-3 promulgated under the 1934 Act, directly or indirectly, of securities of the Corporation representing 50.1% or more of the Corporation’s then outstanding securities having the right to vote in the election of directors, or (iv) during any period of two consecutive years, individuals who, at the beginning of such period constituted the entire Board, cease for any reason (other than death) to constitute a majority of the directors, unless the election, or the nomination for election, by the Corporation’s stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period.
(c)	“Code” means the Internal Revenue Code of 1986, as amended.
(d)	“Common Stock” means the common stock which the Corporation is currently authorized to issue or may in the future be authorized to issue.
(e)	“Corporation” means First Financial Bankshares, Inc., a Texas corporation.
(f)	“Date of Grant” means the effective date on which a Stock Option or related Stock Appreciation Right is awarded to an employee or director as set forth in the stock option agreement.

A-1

(g)	“1934 Act” means the Securities Exchange Act of 1934, as amended.
(h)	“Option Period” means the period during which a Stock Option or related Stock Appreciation Right may be exercised.
(i)	“Participant” means any employee of the Corporation or a Subsidiary who is, or who is proposed to be, a recipient of a Stock Option or related Stock Appreciation Right.
(j)	“Plan” means this Incentive Stock Option Plan as amended from time to time.
(k)	“Stock Appreciation Right” means a right to receive cash equal to the excess fair market value of the Common Stock granted to a Participant under this Plan.
(1)	“Stock Option” means an option to purchase Common Stock of the Corporation granted to a Participant under this Plan and which is intended to qualify as an incentive stock option under Section 422 of the Code.
(m)	“Subsidiary” means any corporation in an unbroken chain of corporations beginning with the Corporation if, at the time of the granting of the Stock Option or related Stock Appreciation Right, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain, and “Subsidiaries” means more than one of any such corporations.

3. Administration.

     Subject to the terms of this Section 3, the Plan shall be administered by the Stock Option Committee (the “Committee”) of the Board which shall consist of at least three outside directors. Any member of the Committee may be removed at any time, with or without cause, by resolution of the Board. Any vacancy occurring in the membership of the Committee may be filled by appointment by the Board. Each member of the Committee, at the time of his appointment to the Committee and while he is a member thereof, must be a “non-employee director”, as defined in revised Rule 16b-3 promulgated under the 1934 Act or any predecessor provision thereto, as applicable.

     The Committee shall select one of its members to act as its Chairman, and shall make such rules and regulations for its operation as it deems appropriate. A majority of the Committee shall constitute a quorum and the act of a majority of the members of the Committee present at a meeting at which a quorum is present shall be the act of the Committee. Subject to the terms hereof, the Committee shall designate from time to time the key employees to whom Stock Options or Stock Appreciation Rights will be granted, interpret the Plan, prescribe, amend and rescind any rules and regulations necessary or appropriate for the administration of the Plan, and make such other determinations and, subject to the terms of the Plan, take such other action as it deems necessary or advisable. In this regard, the Committee shall consider and give appropriate weight to input from representatives of management of the Corporation regarding the contributions or potential contributions to the Corporation of certain of the employees or potential employees of the Corporation. Except as provided below, any interpretation, determination or other action made or taken by the Committee shall be final, binding and conclusive on all interested parties, including the Corporation and all Participants.

4. Eligibility.

     Any employee of the Corporation or its Subsidiaries whose judgment, initiative and efforts contributed or may be expected to contribute to a successful performance of the Corporation is eligible to participate in the Plan. Non-employee directors shall not be eligible to receive Stock Options under the Plan.

5. Shares Subject to Plan.

     The Board may not grant Stock Options or related Stock Appreciation Rights under the Plan for more than 500,000 shares of Common Stock of the Corporation (as may be adjusted in accordance with Section 22 hereof). Shares to be optioned and sold may be made available from either authorized but unissued Common Stock or Common Stock held by the Corporation in its treasury. Shares that by reason of the expiration of a Stock Option or otherwise are no longer subject to purchase pursuant to a Stock Option granted under the Plan may be reoffered under the Plan.

A-2

6. Stock Ownership Limitation for Options.

     No Stock Option may be granted to an employee who owns more than 10% of the total combined voting power of all classes of stock of the Corporation or its Subsidiaries. This limitation will not apply if the Stock Option price is at least 110% of the fair market value of the Common Stock on the Date of Grant and such Stock Option by its terms is not exercisable after the expiration of five (5) years from the Date of Grant.

7. Annual Limit on Grant and Exercise of Options.

     Stock Options shall not be granted to any individual pursuant to the Plan, the effect of which would be to permit such person to first exercise Stock Options, in any calendar year, for the purchase of Common Stock of the Corporation having a fair market value in excess of $100,000 (determined at the time of the grant of the Stock Options in the manner described in Section 10, below). A Participant hereunder may exercise Stock Options for the purchase of Common Stock of the Corporation valued in excess of $100,000 (determined at the time of grant of the Stock Options in the manner described in Section 10, above) in a calendar year, but only if the right to exercise such options shall have first become available in prior calendar years.

8. Allotment of Shares.

     The Committee shall determine the number of shares of Common Stock to be offered from time to time by grant of Stock Options or Stock Appreciation Rights to Participants under the Plan. The grant of a Stock Option or Stock Appreciation Right to a Participant shall not be deemed either to entitle the Participant to, or to disqualify the Participant from, participation in any other grant of Stock Options or Stock Appreciation Rights under the Plan.

9. Grant of Options and Stock Appreciation Rights.

     The grant of Stock Options or related Stock Appreciation Rights shall be evidenced by stock option agreements setting forth such terms and provisions as are approved by the Committee, but not inconsistent with the Plan including provisions that may be necessary to assure that the Stock Option is an incentive stock option under the Code. The Corporation shall execute stock option agreements with the Participants after approval of the issuance of Stock Options or Stock Appreciation Rights. The Board may grant Stock Options or Stock Appreciation Rights under the Plan prior to the time of stockholder approval as required under Section 29 hereof.

10. Option Price.

     The option price for each Stock Option shall not be less than 100% of the fair market value per share of the Common Stock on the Date of Grant. The Committee shall determine the fair market value of the Common Stock on the Date of Grant and shall set forth the determination in its minutes, using any reasonable valuation method.

11. Option Period for Options and Stock Appreciation Rights.

     The Option Period for each Stock Option and Stock Appreciation Right will begin and terminate on the dates specified by the Committee, but may not terminate later than ten years from the Date of Grant. No Stock Option or Stock Appreciation Right granted under the Plan may be exercised at any time after its term. The Committee may provide for exercise of Stock Options or Stock Appreciation Rights immediately or in installments and upon such other terms, conditions and restrictions as it may determine, including granting the Corporation the right to repurchase shares issued upon exercise of options.

12. Payment of Option Price.

     Full payment for shares purchased upon exercise of a Stock Option shall be made in cash, or at the option of the Committee by the Participant’s delivery to the Corporation of previously-acquired shares of Common Stock which have a fair market value equal to the option price, or in any combination of cash and shares of Common Stock having an aggregate fair market value equal to the option price. In the event the Committee determines to permit a Participant to purchase shares pursuant to the exercise of an option hereunder with previously-acquired shares, the Committee may permit the Participant to use shares which he either purchased in the open market or acquired upon the exercise of options under the Plan or any other stock option plan of the Company, including options for which the purchase price was paid, in full or in part, with previously-acquired shares.

A-3

     No shares may be issued until full payment of the purchase price therefor has been made, and a Participant will have none of the rights of a stockholder until shares are issued to him.

13. Exercise of Option and Stock Appreciation Rights.

     Each Stock Option and any Stock Appreciation Right granted under the Plan may be exercised during the Option Period, at such times and in such amounts, in accordance with the terms and conditions and subject to such restrictions as are set forth in the applicable stock option agreements; except that no Stock Option or Stock Appreciation Right granted hereunder to a Participant shall be exercisable while there is outstanding any Stock Option or Stock Appreciation Right previously granted to a Participant. Except as provided in Section 16 below, no Stock Option or Stock Appreciation Right may be exercised at any time unless the Participant is employed by the Corporation or a Subsidiary and has continuously remained an employee at all times since the Date of Grant. If the Committee imposes conditions upon exercise, then subsequent to the Date of Grant the Committee may, also in its sole discretion, accelerate the date on which all or any portion of the Stock Options or related Stock Appreciation Rights may be exercised. In no event may a Stock Option be exercised or shares be issued pursuant to an option if any necessary listing of the shares on a stock exchange or any registration under state or federal securities laws required under the circumstances has not been accomplished.

14. Stock Appreciation Rights.

     Any Stock Option granted under the Plan may, in the discretion of the Committee, include a Stock Appreciation Right. Each Stock Appreciation Right shall be related to a specific Stock Option granted under the Plan, shall be granted concurrently with the Stock Option to which it relates and shall not be exercisable to any greater extent than the related Stock Option is exercisable.

     A Stock Appreciation Right shall entitle the Participant at his election to surrender to the Corporation the Stock Option, or portion thereof, as the Participant shall choose, and to receive from the Corporation in exchange therefor cash in an amount equal to the excess (if any) of the fair market value (as of the date of the exercise of the Stock Appreciation Right) of one share over the purchase price per share specified in such Stock Option, multiplied by the total number of shares called for by the Stock Option, or portion thereof, which is so surrendered. In the discretion of the Committee, the Corporation shall be entitled to elect instead to settle its obligation arising out of the exercise of a Stock Appreciation Right, by the distribution of that number of shares of Common Stock having an aggregate fair market value (as of the date of the exercise of the Stock Appreciation Right) equal to the amount of cash it would otherwise be obligated to pay, with a cash settlement to be made for any fractional share interests, or the Corporation may elect to settle such obligations in part with stock and in part with cash.

     The right of Participant to exercise a Stock Appreciation Right shall be canceled if and to the extent the related Stock Option is exercised. The right of a Participant to exercise a Stock Option shall be canceled if and to the extent that shares covered by such Stock Option are used to calculate cash or shares received upon exercise of a related Stock Appreciation Right.

     The fair market value of Common Stock on the date of exercise of a Stock Appreciation Right shall be determined as of such exercise date in the same manner as the fair market value of Common Stock on the Date of Grant of Stock is determined for purposes of Section 10 hereof.

15. Agreement to Serve.

     Each Participant granted a Stock Option hereunder shall, as one of the terms of the grant, as reflected in the stock option agreement, agree that he will remain in the service of the Corporation or of one of its Subsidiaries for a period of at least two years from the Date of Grant. Notwithstanding the preceding sentence, the Committee may shorten the two year continuous service requirement and provide in the applicable stock option agreement that the Stock Option may be exercised at the normal retirement date as prescribed from time to time by the Corporation or, if applicable, by one of its Subsidiaries. Such service shall (subject to the provisions of Section 16 hereof and to the terms of any contract between the Corporation or any such Subsidiary and such employee) be at the pleasure of the Board and at such compensation as the Board or any committee thereof shall determine from time to time. Any termination of such Participant’s service during such period that is either (i) by the Corporation or such Subsidiary for cause, or (ii) voluntary on the part of the individual and without the written consent of the Corporation or such Subsidiary shall be deemed a violation by the Participant of such agreement. In the event of such violation, any Stock Option or Stock Appreciation Rights held by the Participant under the Plan, to the extent not theretofore exercised, shall terminate. Termination of employment as a result of (i) retirement at the normal

A-4

retirement date as prescribed from time to time by the Corporation or such Subsidiary, or (ii) disability which shall be deemed to be a termination of employment with consent.

16. Termination of Employment of Service.

     In the event a Participant shall cease to be employed by the Corporation or a Subsidiary, for any reason other than death, such Participant’s Stock Options or related Stock Appreciation Rights may be exercised by the Participant for a period of three (3) months after the Participant’s termination of employment or service, as the case may be, or until expiration of the applicable Option Period (if sooner) to the extent of the shares with respect to which such Stock Options or related Stock Appreciation Rights could have been exercised by the Participant on the date of termination, and thereafter to the extent not so exercised, such Stock Options or related Stock Appreciation Rights shall terminate. In the event of death while employed, all Stock Options or related Stock Appreciation Rights outstanding shall be exercisable for a period of twelve (12) months after the Participant’s death or until expiration of the applicable Option Period (if sooner) to the extent of the shares with respect to which the Stock Option or related Stock Appreciation Rights could have been exercised by the Participant on the date of the Participant’s death, and such Stock Option or related Stock Appreciation Rights may only be exercised by the personal representative of the Participant’s estate, or by the person who acquired the right to exercise the Stock Option or related Stock Appreciation Rights by bequest or inheritance or by reason of the Participant’s death.

17. Disqualifying Disposition.

     If stock acquired upon exercise of a Stock Option is disposed of by a Participant prior to the expiration of either two years from the Date of Grant of such option or one year from the transfer of shares to the Participant pursuant to the exercise of such option, or in any other disqualifying disposition within the meaning of Section 422 of the Code, such Participant shall notify the Corporation in writing of the date and terms of such disposition. A disqualifying disposition by a Participant shall not affect the status of any other option granted under the Plan as an incentive stock option within the meaning of the Section 422 of the Code.

18. Non-Assignability.

     A Stock Option or a related Stock Appreciation Right granted to a Participant may not be transferred or assigned, other than (i) by will or the laws of descent and distribution or (ii) pursuant to the terms of a qualified domestic relations order (as defined in Section 411(a)(13) of the Code or Section 206(d)(3) of the Employee Retirement Income Security Act of 1974, as amended) provided that in the case of a Stock Option, such transfer or assignment may occur only to the extent it will not result in disqualifying such option as an incentive stock option under Section 422 of the Code, or any other successor provision. Subject to the foregoing, during a Participant’s lifetime, Stock Options granted to a Participant may be exercised only by the Participant or, subject to the terms hereof, by the Participant’s guardian or legal representative.

19. Amendment or Discontinuance.

     The Board may, without the consent of the Participants, alter, amend, revise, suspend or discontinue the Plan without obtaining approval of the Corporation’s shareholders, provided such action shall not (i) increase the benefits accruing to Participants under the Plan, (ii) increase the number of securities which may be issued under the Plan, or (iii) modify the requirements as to eligibility for Participation in the Plan. Subject to the foregoing limitations, the Board may amend the Plan or modify the agreements evidencing same in order to comply with any exemption from the operation of Section 16(b) of the 1934 Act.

20. Effect of the Plan.

     Neither the adoption of this Plan nor any action of the Board or the Committee shall be deemed to give any officer or employee any right to be granted a Stock Option to purchase Common Stock of the Corporation or any other rights except as may be evidenced by a stock option agreement, or any amendment thereto, duly authorized by the Board and executed on behalf of the Corporation and then only to the extent and upon the terms and conditions expressly set forth therein.

A-5

21. Term.

     Unless sooner terminated by action of the Board, the Plan will terminate on January 21, 2112, but Stock Options and Stock Appreciation Rights granted before that date will continue to be effective in accordance with their terms and conditions.

22. Recapitalization, Merger and Consolidation.

(a)	The existence of this Plan and Stock Options and Stock Appreciation Rights granted hereunder shall not affect in any way the right or power of the Corporation or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Corporation’s capital structure or its business, or any merger or consolidation of the Corporation, or any issue of bonds, debentures, preferred or preference stocks ranking prior to or otherwise affecting the Common Stock or the rights thereof (or any rights, options or warrants to purchase same), or the dissolution or liquidation of the Corporation, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.
(b)	The number of shares of Common Stock available under the Plan described in Section 5, the number of shares of Common Stock that may be purchased pursuant to Stock Options granted under the Plan, and the consideration payable per share upon exercise may be proportionately adjusted by the Board, in its sole discretion, for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decease in such shares, effected without receipt of consideration by the Corporation; provided, however, that any fractional shares resulting from any such adjustment shall be eliminated for the purposes of such adjustment.
(c)	Subject to any required action by the stockholders, if the Corporation shall be the surviving or resulting corporation in any merger or consolidation, any Stock Option and related Stock Appreciation Rights granted hereunder shall pertain to and apply to the securities or rights (including cash, property or assets) to which a holder of the number of shares of Common Stock subject to the Stock Option and related Stock Appreciation Rights would have been entitled.
(d)	In the event of any merger or consolidation pursuant to which the Corporation is not the surviving or resulting corporation, there shall be substituted for each share of Common Stock subject to the unexercised portions of such outstanding Stock Options and related Stock Appreciation Rights, that number of shares of each class of stock or other securities or that amount of cash, property or assets of the surviving or consolidated company which were distributed or distributable to the stockholder of the Corporation in respect to each share of Common Stock held by them, such outstanding Stock Options and related Stock Appreciation Rights to be thereafter exercisable for such stock, securities, cash or property in accordance with their terms. Notwithstanding the foregoing, however, all such Stock Options and related Stock Appreciation Rights may be canceled by the Corporation as of the effective date of any such reorganization, merger or consolidation or of any dissolution or liquidation of the Corporation by giving notice to each holder thereof or his personal representative of its intention to do so and by permitting the purchase during the thirty (30) day period next preceding such effective date of all of the shares subject to such outstanding Stock Options and related Stock Appreciation Rights.
(e)	In the event that either sufficient shares of the Corporation’s Common Stock are purchased, or any tender, exchange or similar offer is commenced which would, if successful (i) result in any of the events described in subsections 22(c) and (d), (ii) materially alter the structure or business of the Corporation, or (iii) result in a Change in Control of the Corporation, then, notwithstanding any other provision in the Plan to the contrary, all unmatured installments of Stock Options and related Stock Appreciation Rights outstanding shall thereupon automatically be accelerated and exercisable in full. The determination of the Board that any of the foregoing conditions has been met shall be binding and conclusive on all parties.
(f)	Except as hereinbefore expressly provided, the issue by the Corporation of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or

A-6

property, or for labor or services either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Corporation convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to Stock Options or Stock Appreciation Rights granted pursuant to this Plan.

(g)

Upon the occurrence of each event requiring an adjustment of the exercise price or the number of shares purchasable pursuant to Stock Options or Stock Appreciation Rights granted pursuant to the terms of this Plan, the Corporation shall mail forthwith to each Participant a copy of its computation of such adjustment.

23. Liquidation or Dissolution.

     In case the Corporation shall, at any time while any Stock Option or Stock Appreciation Rights under this Plan shall be in force and remain unexpired, (i) sell all or substantially all its property, or (ii) dissolve, liquidate, or wind up its affairs, then each Participant may thereafter receive upon exercise hereof (in lieu of each share of Common Stock of the Corporation which such Participant would have been entitled to receive) the same kind and amount of any securities or assets as may be issuable, distributable or payable upon any such sale, dissolution, liquidation, or winding up with respect to each share of Common Stock of the Corporation. If the Corporation shall, at any time prior to the expiration of any Stock Option, make any partial distribution of its assets, in the nature of a partial liquidation, whether payable in cash or in kind (but excluding the distribution of a cash dividend payable out of earned surplus and designated as such) then in such event the exercise prices then in effect with respect to each Stock Option shall be reduced, on the payment date of such distribution, in proportion to the percentage reduction in the tangible book value of the shares of the Corporation’s Common Stock (determined in accordance with generally accepted accounting principles) resulting by reason of such distribution.

24. Options in Substitution for Stock Options Granted by Other Corporations.

     Stock Options and related Stock Appreciation Rights may be granted under the Plan from time to time in substitution for such options held by employees of a corporation who become or are about to become employees of the Corporation or a Subsidiary as the result of a merger or consolidation of the employing corporation with the Corporation or a Subsidiary or the acquisition by either of the foregoing of stock of the employing corporation as the result of which it becomes a Subsidiary. The terms and conditions of the subsided Stock Options and related Stock Appreciation Rights so granted may vary from the terms and conditions set forth in this Plan to such extent as the Board at the time of grant may deem appropriate to conform, in whole or in part, to the provisions of the options in substitution for which they are granted.

25. Investment Intent.

     The Corporation may require that there be presented to and filed with it by any Participant under the Plan, such evidence as it may deem necessary to establish that the Stock Options granted or the shares of Common Stock to be purchased or transferred are being acquired for investment and not with a view to their distribution.

26. No Right to Continue Employment.

     Nothing in the Plan or the grant of any Stock Option and related Stock Appreciation Rights confers upon any employee the right to continue in the employ of the Corporation or interferes with or restricts in any way the right of the Corporation to discharge any employee at any time (subject to any contract rights of such employee).

27. Indemnification of Board and Committee.

     No member of the Board or the Committee, nor any officer or employee of the Corporation acting on behalf of the Board or the Committee, shall be personally liable for any action, determination or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Committee and each and any officer or employee of the Corporation acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Corporation in respect of any such action, determination or interpretation.

A-7

28. Government Regulations.

     Notwithstanding any of the provisions hereof, or of any written agreements evidencing Stock Options or Stock Appreciation Rights granted hereunder, the obligation of the Corporation to sell and deliver shares shall be subject to all applicable laws, rules and regulations and to such approvals by any government agencies or national securities exchanges as may be required. The employee shall agree not to exercise any Stock Option or Stock Appreciation Right, and the Corporation shall not be obligated to issue any shares, if the exercise thereof or if the issuance of shares shall constitute a violation by the employee or the Corporation of any provision of any law or regulation of any governmental authority.

29. Stockholder Approval.

     The Plan will be submitted to the common stockholders of the Corporation at the next annual meeting of the stockholders, for approval by the holders of a majority of the outstanding shares of Common Stock of the Corporation. If the Plan is not approved by the holders of a majority of the outstanding shares of Common Stock of the Corporation by June 30, 2002, then the Plan shall terminate and any options granted hereunder shall be void and of no further force or effect.

A-8

EX-10.4

                                                                    EXHIBIT 10.4


                                 LOAN AGREEMENT
                                 --------------

                                     Between

FIRST FINANCIAL BANKSHARES, INC.                        THE FROST NATIONAL BANK
P.O. Box 701                                            100 W. Houston Street
Abilene, Texas 7                       and              San Antonio, Texas 78205

                             As of December 31, 2004

     THIS LOAN AGREEMENT (the  "Agreement") will serve to set forth the terms of
the financing  transactions by and between FIRST FINANCIAL  BANKSHARES,  INC., a
Texas corporation ("Borrower"),  and THE FROST NATIONAL BANK, a national banking
association (" Lender"):

     WHEREAS,  Borrower  is  desirous  of  obtaining  a loan from  Lender in the
aggregate principal amount of FIFTY MILLION AND NO/100 DOLLARS  ($50,000,000.00)
which shall be for the sole  purpose of  financing  bank  acquisitions,  working
capital needs and treasury stock repurchases; and

     WHEREAS,  Lender  is  desirous  of  making  such  loan to  Borrower  in the
principal  amount of FIFTY MILLION AND NO/100 DOLLARS  ($50,000,000.00)  for the
purposes set forth above, but on the terms,  conditions and covenants  hereafter
contained;

     NOW, THEREFORE,  subject to all terms, conditions and covenants hereinafter
set  forth  and in  consideration  of the  premises  and  the  mutual  covenants
contained herein, the parties hereto agree as follows:

                                    ARTICLE I

                                   Definitions
                                   -----------

     1.01 Definitions.  The terms defined in this Article I (except as otherwise
expressly  provided in this Agreement) for all purposes shall have the following
meanings:

     "Advance" shall mean the amounts requested by Borrower from time to time as
set forth in Section 2.01 of this Agreement.

     "Average  Assets"  shall  mean the  average  of the  assets  most  recently
reported by a bank to its regulatory  authorities  calculated in accordance with
regulatory accounting principles consistently applied.

     "Bank" shall mean any banks and financial  institutions,  whether chartered
by the federal  government or any State,  which are subsidiaries of the Borrower
and whose common stock is pledged as Collateral  to the Loan in accordance  with
Section 2.3 hereof.






First Financial Bankshares, Inc.
Loan Agreement -                                                          Page 1





     "Business Day" shall mean a day on which Lender is open for  transaction of
its general banking business.

     "Capital  Ratio" shall mean the ratio of Equity Capital to total assets (as
determined  by  regulatory  accounting   principles   consistently  applied)  of
Borrower.

     "Cash  Flow   Coverage"   shall  mean  the  ratio  of  (i)  the  Borrower's
consolidated Net Income after dividends plus depreciation plus amortization plus
loan loss  provisions,  to (ii) the  current  maturities  (inclusive  of accrued
interest on unpaid principal) of long term debt, all as determined in accordance
with GAAP.

     "Closing  Date"  shall  mean the date this  Agreement  is  executed  by all
parties  hereto  which  shall be the day and year  first  written  above  unless
otherwise  indicated.  The closing shall take place at such place as the parties
shall mutually agree.

     "Collateral" shall have the meaning ascribed to it in Section 2.03.

     "Equity  Capital"  shall mean the sum of (i) preferred  stock,  (ii) common
stock (iii) capital  surplus,  (iv) retained  earnings,  (v)  accumulated  other
comprehensive  income,  all as determined by  regulatory  accounting  principles
consistently applied.

     "Event of  Default"  means  any event  specified  in  Section  6.01 of this
Agreement,  provided that any  requirement in connection with such event for the
giving of notice or lapse of time or any other condition has been satisfied.

     "FFBD"  means First  Financial  Bankshares  of  Delaware,  Inc., a Delaware
corporation and wholly owned subsidiary of Borrower.

     "GAAP"  means  generally  accepted  accounting  principles,  applied  on  a
consistent basis, as set forth in Opinions of the Accounting Principles Board of
the American  Institute of Certified Public  Accountants and/or in statements of
the Financial Accounting Standards Board and/or their respective  successors and
which are applicable in the circumstances as of the date in question. Accounting
principles are applied on a "consistent  basis" when the  accounting  principles
observed in a current  period are  comparable in all material  respects to those
accounting principles applied in a preceding period.

     "Highest  Lawful Rate" shall mean the maximum rate of nonusurious  interest
allowed from time to time by Law.  Unless  changed in  accordance  with Law, the
applicable  rate ceiling  under Texas law shall be the  indicated  (weekly) rate
ceiling  from time to time in effect as  provided  in  Chapter  303 of the Texas
Finance Code, as amended;  but in no event shall Tex. Rev. Civ. Stat.  Ann. Art.
5069 ch. 15 (which  regulates  certain  revolving  loan  accounts and  revolving
triparty accounts) apply to the Loan.

     "LIBOR"  shall mean the London  Interbank  Offered  Rate  (LIBOR) for three
months  quoted on the first  business day of each  calendar  quarter in The Wall
Street Journal (Central Edition) in the "Money Rates" column. If the Wall Street
Journal  London  Interbank  Offered  Rate  ceases  to be made  available  by the
publisher,  or any  successor  to the  publisher  of The  Wall  Street  Journal,
(Central  Edition),  the interest  rate will be determined by using a comparable
index.  If more than one Wall Street Journal London  Interbank  Offered Rate for
three months is quoted,








First Financial Bankshares, Inc.
Loan Agreement --                                                         Page 2





the higher rate shall apply.  The Wall Street Journal London  Interbank  Offered
Rate is a reference rate and does not  necessarily  represent the lowest or best
rate actually charged to any customer.

     "Laws" shall mean all  statutes,  laws,  ordinances,  regulations,  orders,
writs, injunctions,  or decrees of the United States, any state or commonwealth,
any municipality, or any Tribunal.

     "Loan" shall mean the  extension of credit to Borrower  pursuant to Section
2.01 of this Agreement.

     "Loan  Documents"  shall  mean  this  Agreement,  the  Note,  the  Security
Instruments, and all instruments or documents executed and delivered pursuant to
or in  connection  with  this  Agreement  and any  future  amendments  hereto or
thereto, and all renewals and extensions thereof.

     "Loan Loss Reserve  Ratio" shall mean the ratio of reserves for loan losses
to total loans.

     "Net Income"  shall mean that amount of income  remaining  after  deducting
expenses  (including  provision  for loan and lease  losses) and payments of all
taxes incurred on said income and after deducting securities  transactions,  all
as calculated in accordance with GAAP.

     "Non-Performing  Assets"  means  loans on  nonaccrual,  loans on which  the
interest rate has been reduced other than to reflect the then prevailing  market
interest  rates,  loans  which have been past due for  ninety  (90) days or more
(specifically  excluding all  performing  bankruptcy  mortgages)  and Other Real
Estate.

     "Non-Performing  Assets  Ratio"  means the ratio of loan  loss  reserve  to
Non-Performing Assets.

     "Note" shall mean the promissory note evidencing the Loan executed pursuant
to Section 2.02 of this Agreement and any promissory note issued in substitution
therefor or in renewal or extension or rearrangement thereof.

     "Obligations" shall mean the outstanding  principal amounts of the Note and
interest accrued thereon,  and any and all other  indebtedness,  liabilities and
obligations  whatsoever of Borrower to Lender under the Note and/or the Security
Instruments  and  all  renewals,  modifications  and  extensions  thereof,  plus
interest  accruing on any foregoing and all attorney fees and costs  incurred in
the enforcement of any foregoing.

     "Other Real Estate" shall mean the real property  owned by Bank as a result
of foreclosure,  deeds in lieu of foreclosure,  or judicial process, or received
as partial  payment of a note,  specifically  excluding real estate  occupied by
Bank in the conduct of its ordinary course of business.

     "Person"  shall  mean  any  individual,  firm,  corporation,   association,
partnership, joint venture, trust or other entity, or Tribunal.

     "Return  on  Assets"  shall  mean the ratio of Net  Income  to the  Average
Assets.

     "Return  on  Equity,"  shall  mean the ratio of Net  Income  to the  Equity
Capital.










First Financial Bankshares, Inc.
Loan Agreement -                                                          Page 3





     "Revolving  Credit  Period"  shall  have the  meaning  ascribed  to same in
Section 2.02 hereof.

     "Security  Instruments"  shall  mean  the  Pledge  and  Security  Agreement
referred to in Section 2.03 of this Agreement and any other  documents  securing
the Obligations.

     "Subsidiary"  means any  corporation or bank of which more than fifty (50%)
of the issued and  outstanding  securities  having ordinary voting power for the
election  of a  majority  of  directors  is owned  or  controlled,  directly  or
indirectly,  by Borrower; by Borrower with one or more Subsidiaries;  or by just
one or more Subsidiaries.

     "Tangible Net Worth" means,  at any particular  time, all amounts which, in
conformity  with GAAP,  would be included as  stockholders'  equity on a balance
sheet; provided,  however, there is excluded therefrom:  (i) any amount at which
shares of capital stock of Borrower (treasury shares) appears as an asset on the
balance sheet, (ii) goodwill,  including any amounts,  however designated,  that
represent  the  excess of the  purchase  price paid for assets or stock over the
value assigned thereto, (iii) patents,  trademarks, trade names, and copyrights,
and (iv) all other assets which are properly classified as intangible assets.

     "Taxes" shall mean all taxes, assessments, fees, or other charges from time
to time or at any time imposed by any Laws or by any Tribunal.

     "Tribunal"   shall  mean  any  state,   commonwealth,   federal,   foreign,
territorial,  regulatory, or other court or governmental department, commission,
board, bureau, agency or instrumentality.

     1.02 Other  Definitional  Provisions.  All  definitions  contained  in this
Agreement  are equally  applicable to the singular and plural forms of the terms
defined.  The words  "hereof,"  "herein," and  "hereunder"  and words of similar
import referring to this Agreement refer to this Agreement as a whole and not to
any particular  provision of this Agreement.  Unless  otherwise  specified,  all
Article and Section references  pertain to this Agreement.  All accounting terms
not specifically defined herein shall be construed in accordance with GAAP.

                                   ARTICLE II

                     Loan, Security and Conditions Precedent
                     ---------------------------------------

     2.01 The  Loan.  Subject  to the terms and  conditions  of this  Agreement,
Lender  agrees to make the Loan to  Borrower  in the  principal  amount of FIFTY
MILLION AND NO/100  DOLLARS  ($50,000,000.00)  shall be for the sole  purpose of
financing  bank   acquisitions,   working   capital  needs  and  treasury  stock
repurchases.

     2.02  The  Note.  The  obligation  of  Borrower  to pay the  Loan  shall be
evidenced by a promissory note (the "Note")  executed by Borrower and payable to
the order of Lender, in the principal amount of $50,000,000  bearing interest at
the variable  rate set forth in the Note.  The Borrower  shall pay principal and
interest in accordance  with the terms of the Note, with the maturity date being
as set forth in the Note.

          (a)  Advances.  From Closing Date and  continuing at all times through
     December 31, 2005 (the "Revolving Credit Period") the Loan evidenced by the
     Note shall be a revolving  credit facility which will allow the Borrower to
     request such amounts






First Financial Bankshares, Inc.
Loan Agreement --                                                         Page 4





     as  Borrower  may elect from time to time (each such  amount  being  herein
     called  an  "Advance")  so  long  as  the  aggregate   amount  of  Advances
     outstanding  at any time under the  Acquisition  Note does not exceed Fifty
     Million and No/100 Dollars  ($50,000,000.00)  provided however, the minimum
     Advance must be at least $500,000.00.  The Borrower shall have the right to
     borrow,  repay,  and borrow  again  during  the  Revolving  Credit  Period.
     Interest shall be due and payable  quarterly and shall accrue at LIBOR plus
     100 basis points. The outstanding principal balance of the Note on December
     31, 2005 shall convert to a term facility and shall be payable quarterly in
     accordance with the terms of the Note,  with all unpaid  principal plus all
     accrued and unpaid interest being due and payable on December 31, 2010.

          (b) Revolving  Principal Balance. It is contemplated that by reason of
     payments or prepayments  there may be times when no  indebtedness  is owing
     under the Loan; but notwithstanding such occurrences, the Note shall remain
     valid and shall be in full force and effect as to Advances made pursuant to
     and under the terms of the Note  subsequent  to each such  occurrence.  All
     loans or  Advances  and all  payments  or  prepayments  made on  account of
     principal  or  interest  shall be  endorsed  by the holder of the Note on a
     schedule attached thereto and made a part thereof for all purposes.  In the
     event that the unpaid principal amount at any time, for any reason, exceeds
     the maximum amount specified in the Note,  Borrower covenants and agrees to
     immediately  pay to the Lender the excess  principal  amount,  such  excess
     principal  amount shall in all respects be deemed to be included  among the
     loans or  Advances  made  pursuant to the other terms of the Note and shall
     bear interest at the rates therein stated.

          (c) Interest  Calculation.  Adjustments  in the interest rate shall be
     made on the first day of each calendar  quarter for any change in LIBOR and
     adjustments  due to changes in the  Highest  Lawful  Rate to be made on the
     effective date of any change in the Highest Lawful Rate.  Interest shall be
     computed  on a per  annum  basis of a year of 360  days and for the  actual
     number of days  (including  the first but  excluding  the last day) elapsed
     unless such  calculation  would  result in a usurious  rate,  in which case
     interest  shall be  calculated on a per annum basis of a year of 365 or 366
     days,  as the case may be. It is the  intention  of Borrower  and Lender to
     conform strictly to applicable usury laws. Accordingly, if the transactions
     contemplated  hereby would be usurious under  applicable law, then, in that
     event,  notwithstanding anything to the contrary herein or in any agreement
     entered into in connection  with or as security for this Loan, it is agreed
     as  follows:  (i) the  aggregate  of all  consideration  which  constitutes
     interest under  applicable  law that is taken,  reserved,  contracted  for,
     charged  or  received  under  this  Loan or  under  any of the  other  Loan
     Documents  or  otherwise  in  connection  with  this  note  shall  under no
     circumstances  exceed the maximum amount of nonusurious interest allowed by
     applicable law, and any excess shall be credited on this Loan by the holder
     hereof (or,  to the extent that this note shall have been or would  thereby
     be paid in full,  then it shall be  applied  to any other  indebtedness  of
     Borrower  to Lender,  or to the extent all other  indebtedness  has been or
     would thereby be paid in full, refunded to Borrower); and (ii) in the event
     that maturity of this Loan is  accelerated  by reason of an election by the
     holder hereof resulting from any default hereunder or otherwise,  or in the
     event of any required or permitted prepayment, then such consideration that
     constitutes  interest  may never  include  more than the maximum  amount of
     nonusurious  interest  allowed by applicable law, and excess  interest,  if
     any, provided for in this note or otherwise shall be canceled automatically
     as of the date of such acceleration or prepayment and, if









First Financial Bankshares, Inc.
Loan Agreement -                                                          Page 5





     theretofore prepaid, shall be credited on this Loan (or, to the extent that
     this Loan shall have been or would  thereby be paid in full,  then it shall
     be applied  to any other  indebtedness  of  Borrower  to Lender,  or to the
     extent all other  indebtedness  has been or would  thereby be paid in full,
     refunded to Borrower).

     2.03  Security  for the  Loan.  To secure  full and  complete  payment  and
performance of the Obligations, Borrower shall execute and deliver the following
documents (which, together with all property which may hereafter be delivered to
secure the Obligations, being herein called "Collateral"):

               (i) At such time as the  Borrower  requests an Advance  under the
          Note which, when aggregated with prior Advances, exceed an outstanding
          principal  balance of the Note of  $25,000,000,  then  Borrower  shall
          execute  a Pledge  and  Security  Agreement  (in form and  content  as
          Exhibit A,  attached  hereto  and  incorporated  herein by  reference)
          wherein the Borrower  shall cause FFBD to pledge and grant to Lender a
          first priority  security interest in one hundred percent (100%) of the
          outstanding  shares of common stock of First National Bank of Abilene.
          The Lender shall  maintain its security  interest in such common stock
          until  the  Note  is  paid  in  full,  regardless  of the  outstanding
          principal  balance of the Note.  Lender shall retain possession of the
          certificate(s)  representing  said common  stock,  together with stock
          powers executed in blank by Borrower.

               (ii) A Guaranty Agreement executed by FFBD.

     2.04 Conditions  Precedent to Closing. The obligation of Lender to make the
Loan  shall be  subject  to the  conditions  precedent  that  Lender  shall have
received  on or  before  the  day  of the  making  of the  Loan,  the  following
documents, in form and substance satisfactory to Lender:

          (a) Note. The Note executed by Borrower.

          (b)  Security  Instruments.   The  Security  Instruments  executed  by
     Borrower granting to Lender a security interest in the Collateral.

          (c) Guaranty Agreement. The Guaranty Agreement executed by the FFBD.

          (d) Stock Certificates, Powers, UCC-1. The original stock certificates
     pledged as collateral,  the executed stock powers and financing  statements
     (if requested by Lender) to evidence the security  interest  granted in the
     Security Instruments.

          (e)  Resolutions.  Corporate  resolutions of the Board of Directors of
     Borrower and FF13D,  certified by the Secretary of such corporation,  which
     resolutions  authorize  the  execution,  delivery  and  performance  by the
     respective  corporation  of this  Agreement  and the other Loan  Documents.
     Included in said  resolutions  or by separate  document,  the Lender  shall
     receive  a  certificate  of  incumbency   certified  by  the  Secretary  of
     corporation certifying the names of each officer authorized to execute this
     Agreement and the other Loan Documents,  together with specimen  signatures
     of such officers.











First Financial Bankshares, Inc.
Loan Agreement -                                                          Page 6





          (f) Articles of Incorporation. Copies of the Articles of Incorporation
     of Borrower and FFBD and the Articles of  Association  of Bank certified to
     be true and correct by the  Secretary of such  corporations  and cashier of
     such Bank, respectively.

          (g) Bylaws. The Bylaws of Borrower, FFBD and Bank certified to be true
     and correct by the Secretary of such  corporation and cashier of such Bank,
     respectively.

          (h)  Government  Certificates.   Certificates  of  Good  Standing  and
     Existence issued by the appropriate  government  entities for the Borrower,
     FFBD and the Bank;  and a copy of the Letter of Approval  from the Board of
     Governors of the Federal Reserve Bank approving Borrower's application as a
     bank holding company (or such other  documentation  acceptable to Lender to
     evidence the Borrower's status as a bank holding company).

          (i) Opinion of  Borrower's  Counsel.  Lender shall have  received from
     Borrower's counsel an opinion  satisfactory  inform and substance to Lender
     and its counsel.

          (j) Financial  Statements.  Borrower and its  Subsidiaries  shall have
     each  delivered  to Lender  such  financial  statements  as shall have been
     requested by Lender,  in form and substance  satisfactory  to Lender in its
     sole discretion.

          (k) Fees. Borrower shall pay all fees incurred by Lender in connection
     with the Loan, including without limitation, the Lender's attorney's fees.

          (l)  Additional  Papers.  Borrower shall have delivered to Lender such
     other documents,  records,  instruments,  papers, opinions, and reports, as
     shall have been requested by Lender, to evidence the status or organization
     or  authority  of  Borrower  or  to  evidence  or  secure  payment  of  the
     Obligations, all in form satisfactory to Lender and its counsel.



                                   ARTICLE III

                         Representations and Warranties
                         ------------------------------

     To induce  Lender to enter into this  Agreement  and upon which  Lender has
relied in entering into this Agreement and consummating the transactions  herein
described, Borrower represents and warrants to Lender that:

     3.01  Organization of Borrower.  Borrower is a corporation  duly organized,
validly  existing,  and in good  standing  under the laws of the State of Texas;
Borrower is duly authorized,  qualified under all applicable Laws to conduct its
businesses; and Borrower has full power, capacity,  authority and legal right to
conduct  the  businesses  in which it does now,  and  propose  to,  engage;  and
Borrower  has full  power,  capacity,  authority  and legal right to execute and
deliver and to perform and observe the  provisions  of this  Agreement,  and the
other  Loan  Documents,  to which it is a party,  all of which  have  been  duly
authorized and approved by all necessary corporate action. FFBD is a corporation
duly  organized,  validly  existing,  and in good standing under the laws of the
State of Delaware;  FFBD is duly  authorized and qualified  under all applicable
Laws to conduct its businesses; and FFBD has full power, capacity, authority and
legal right to conduct the  businesses  in which it does now,  and  proposes to,
engage; and FFBD has full power, capacity, authority and






First Financial Bankshares, Inc.
Loan Agreement -                                                          Page 7





legal right to execute and deliver and to perform and observe the  provisions of
this Agreement and the other Loan Documents to which it is a party, all of which
have been duly authorized and approved by all necessary corporate action.

     3.02  Litigation.  No  action,  suit or  proceeding  against  or  affecting
Borrower  or any  Subsidiary  is known to be  pending,  or to the  knowledge  of
Borrower  threatened,  in  any  court  or  before  any  governmental  agency  or
department,  which, if adversely determined, could result in a final judgment or
liability  of a material  amount not fully  covered by  insurance,  or which may
result in any material  adverse  change in the  business,  or in the  condition,
financial or otherwise, of Borrower.  There are no outstanding judgments against
Borrower or any Subsidiary.

     3.03 Compliance With Other Instruments.  To the knowledge of Borrower,  (i)
there is no default in the performance of any material obligation,  covenant, or
condition  contained in any agreement to which Borrower is a party which has not
been waived,  (ii) neither  Borrower nor any  Subsidiary is in material  default
with respect to any Law of any Tribunal,  and (iii) the execution,  delivery and
performance  of the  terms  of this  Agreement,  the  Note  and the  other  Loan
Documents by Borrower will not violate the  provisions of any Law  applicable to
Borrower.  Borrower's  By-laws or  Articles  of  Incorporation,  or any order or
regulation of any  governmental  authority to which the Borrower is subject will
not  conflict  with or  result in a  material  breach of any of the terms of any
agreement or  instrument  to which  Borrower is a party or by which  Borrower is
bound, or constitute a default thereunder,  or result in the creation of a lien,
charge,  or  incumbrance  of any nature  upon any of  Borrower's  properties  or
assets.

     3.04 No Default.  No Event of Default  specified in Article VI has occurred
and is continuing.

     3.05  Corporate  Authorization.  Borrower's  Board of  Directors  have duly
authorized  the  execution  and  delivery of this  Agreement  and the other Loan
Documents to which it is a party and the performance of their  respective  terms
and no  consent  of the  stockholders  of  Borrower  or any  other  Person  is a
prerequisite  thereto  or if a  prerequisite  thereto,  the same  has been  duly
obtained.  This Agreement and all other Loan Documents are valid,  binding,  and
enforceable obligations of Borrower in accordance with their respective terms.

     3.06   Disclosure.   Neither  this   Agreement  nor  any  other   document,
certificate,  Loan Document or statement  furnished to Lender by or on behalf of
Borrower in  connection  herewith is known to contain any untrue  statement of a
material  fact or, to the knowledge of Borrower , omits to state a material fact
necessary  in order to make the  statements  contained  herein and  therein  not
misleading.

     3.07  Federal   Reserve   Board   Regulations.   Borrower  is  not  engaged
principally, or as one of its important activities, in the business of extending
credit for the  purpose of  purchasing  or  carrying  margin  stock  (within the
meaning of  Regulation  G, T, U, or X of the Board of  Governors  of the Federal
Reserve System) and no part of the proceeds of the Loan will be used to purchase
or carry any  margin  stock or to extend  credit to others  for the  purpose  of
purchasing or carrying any margin stock except as otherwise disclosed in writing
to Lender. Neither Borrower nor any agent acting on its behalf has taken or will
take any action  which might cause  Borrower's  execution  of this  Agreement to
violate any regulation of the Boar d of Governors of the Federal  Reserve System
or to violate the Securities Act of 1933 or the Securities Exchange Act of 1934,
as amended.










First Financial Bankshares, Inc.
Loan Agreement -                                                          Page 8





     3.08 Stock and Stock  Agreements.  Neither  Borrower nor any Subsidiary has
any class of stock  authorized  other than common stock.  Further,  Borrower has
furnished  to  Lender  copies  of  all  buy-sell  agreements,  stock  redemption
agreements,  voting trust  agreements  and all other  agreements  and  contracts
involving  the  stock  of  Borrower  and/or  each of its  Subsidiaries  to which
Borrower or any  Subsidiary  is a party and there are not now any  agreements or
terms of any  agreements  to which  Borrower or any  Subsidiary is a party which
alter,  impair,  affect or abrogate the rights of Lender or the  Obligations  of
Borrower under this Agreement or any other Loan Document. Borrower has disclosed
to Lender that it has adopted a Stock  Repurchase  Plan for up to 500,000 shares
of its common  stock and that it  anticipates  that  there  will be other  stock
agreements  or trust  preferred  agreements  with new mergers and  acquisitions,
copies of which the Borrower  shall deliver to Lender  within a reasonable  time
following the acquisition.

     3.09  Financial  Statements.   The  consolidated  financial  statements  of
Borrower,  dated as of December 31, 2003, and furnished to Lender, were prepared
in accordance with regulatory  accounting  principles or GAAP, as indicated upon
such  statements,  and such  statements  fairly  present,  as  appropriate,  the
consolidated  financial  conditions and the results of operations of Borrower as
of, and for the portion of the fiscal year ending on, the date or dates thereof.
There were no material adverse events or liabilities,  director indirect,  fixed
or contingent,  of Borrower as of the date or dates of such financial statements
and known to Borrower,  which are not reflected  therein or in the Note thereto.
Except for transactions  directly  related to, or specifically  contemplated by,
the Loan Documents and transactions  heretofore  disclosed in writing to Lender,
there  have  been  no  material  adverse  changes  in the  respective  financial
conditions  of  Borrower  and/or  its  Subsidiaries  from  those  shown  in such
financial statements between such date or dates and the date hereof.

     3.10 Taxes. All federal,  state, foreign, and other Tax returns of Borrower
and each  Subsidiary  required  to be filed have been  filed,  and all  federal,
state,  foreign,  and Taxes are shown thereon as owing have been paid.  Borrower
does not know of any  pending  audit or  investigation  of  Borrower  and/or any
Subsidiary with any taxing authority.

     3.11 Title to Collateral.  Borrower owns 100% of the stock of FFBD, free of
any lien or claim or any  right or  option  on the part of any  third  person to
purchase or otherwise acquire the Collateral or any part thereof, except for the
first priority lien granted  pursuant to the Loan  Documents.  FFBD owns 100% of
the  stock of each  Bank free of any lien or claim or any right or option on the
part of any third person to purchase or  otherwise  acquire the Bank or any part
thereof.  With  respect  to  Collateral  delivered  after the date  hereof,  the
Borrower or FFBD will own, legally and  beneficially,  100% of the stock of such
Bank  free of any lien or claim or any  right or option on the part of any third
person to purchase or otherwise acquire the Collateral or any part thereof.  The
Collateral is not subject to any  restriction  on transfer or assignment  except
for  compliance  with   applicable   federal  and  state  laws  and  regulations
promulgated thereunder.  Borrower and FFBD have the unrestricted right to pledge
the Collateral as contemplated  hereby. All of the Collateral has been, and with
respect to Collateral  delivered after the date hereof, will be duly and validly
issued and fully paid and nonassessable.

     3.12 Use of Loan Proceeds.  All loan proceeds or funds  furnished by Lender
to  Borrower  pursuant  to this  Agreement  shall be used solely for the purpose
specified in Article II of this Agreement.











First Financial Bankshares, Inc.
Loan Agreement -                                                          Page 9





                                   ARTICLE IV

                              Affirmative Covenants
                              ---------------------

     While any part of the  Obligations  remains  unpaid  and  unless  otherwise
waived in writing by Lender.

     4.01 Accounts. Reports and Other Information.  Borrower shall maintain, and
cause each Subsidiary to maintain, a standard system of accounting in accordance
with regulatory accounting principles or GAAP, as applicable, and Borrower shall
furnish to Lender the following:

          (a)  Quarterly  Information.  As soon as  available,  but no more than
     forty-five  (45) days after the end of each of the first three  quarters of
     Borrower's  fiscal  year,  (i) a copy of its Form  10Q;  (ii) a copy of the
     Federal Reserve Board Form Y-9C and Y-9LP;  (iii) an officer's  certificate
     setting forth the information  required to establish  whether  Borrower and
     its Subsidiaries were in compliance with the financial covenants and ratios
     set forth in  Articles IV and V hereof  during the period  covered and that
     signer or signers have  reviewed the relevant  terms in this  Agreement and
     have made,  or caused to be made under their  supervision,  a review of the
     transactions of Bank from the beginning of the accounting period covered by
     the  financial  statements  being  delivered  therewith  to the date of the
     officer's  certificate  and that such review has not disclosed any Event of
     Default,  or  material  violation  or breach in the due  observance  of any
     covenant,  agreement  or  provision  of this  Agreement;  (iv) as to  those
     Subsidiaries  whose stock has been pledged hereunder as Collateral,  copies
     of all  FFIEC  Call  Reports  furnished  by  each  such  Subsidiary  to the
     appropriate Tribunal; (v) such other information as Lender shall reasonably
     request.

          (b) Annual  Information.  As soon as  available,  but no more than one
     hundred  twenty  (120) days after the end of each fiscal year of  Borrower.
     (i) a copy of the  Borrower's  Form 10K; (ii) an opinion by an  independent
     certified public accountant selected by Borrower, which opinion shall state
     that  said  consolidated   financial   statements  have  been  prepared  in
     accordance  with GAAP and that such  accountant's  audit of such  financial
     statements  has been made in accordance  with generally  accepted  auditing
     standards  and  that  said   financial   statements   present   fairly  the
     consolidated  financial condition of Borrower,  and FFBD and the results of
     their operations; (iii) a copy of the Federal Reserve Board Form Y-6 Annual
     Report of Borrower  and FFBD,  as filed with the Board of  Governors of the
     Federal  Reserve  System;  and (iv) such  other  information  as Lender may
     reasonably request.

          (c) Other Reports and Information. As soon as available, copies of all
     other financial and other statements, reports, correspondence,  notices and
     information of Borrower,  each Subsidiary as may be requested,  in form and
     substance reasonably  satisfactory to Lender. The Borrower shall add Lender
     to its  shareholder  mailing list which will allow it to receive  copies of
     correspondence with its shareholders.

     4.02  Existence.   Borrower  and  its  Subsidiaries  shall  maintain  their
respective  existence as a corporation  and all of its  privileges,  franchises,
agreements,  qualifications  and rights that are  necessary  or desirable in the
ordinary course of business;  and Borrower shall cause each of its  Subsidiaries
to maintain and preserve their respective good standing with all Tribunals.







First Financial Bankshares, Inc.
Loan Agreement -                                                         Page 10





     4.03  Observance  of  Terms.  Borrower  shall:  (i) pay the  principal  and
interest on the Note in accordance  with its terms;  and (ii) observe,  perform,
and comply with every covenant,  term and condition  herein expressed or implied
on the part of Borrower to be observed, performed or complied with.

     4.04 Compliance With Applicable Laws. Borrower and each Subsidiary shall in
all material respects comply with the requirements of all applicable Laws of any
Tribunal.

     4.05 Inspection. Upon prior reasonable notice and at the convenience of the
Borrower,  the  Borrower  and each  Subsidiary  shall  permit an  officer in the
Correspondent  Banking Department of Lender to visit,  review and/or inspect any
of its properties and assets at any reasonable  time and to examine all books of
account, records, reports,  examinations and other papers (subject to applicable
confidentiality  requirements),  to make  copies  therefrom  at the  expense  of
Borrower, and to discuss the affairs, finances and accounts of Borrower and each
Subsidiary with their  respective  employees and officers at all such reasonable
times and as often as may be reasonably requested.

     4.06 Change.  Borrower shall promptly  notify Lender of: (i) all litigation
affecting  Borrower or any Subsidiary which is not (in the reasonable  judgement
of Borrower)  adequately  covered by  insurance  and which could have a material
adverse  effect on the financial  condition or operations of the Borrower,  (ii)
any other matter  which could have a material  adverse  effect on the  financial
condition or operations of Borrower or any Subsidiary.

     4.07 Payment of Taxes.  Borrower and its Subsidiaries  shall pay all lawful
Taxes  imposed  upon them or upon  their  income or profits or upon any of their
property before the same shall be delinquent;  provided,  however,  that neither
Borrower  nor any  Subsidiary  shall be required to pay and  discharge  any such
Taxes:  (i) so long as the validity  thereof shall be contested in good faith by
appropriate proceedings diligently pursued and such liable party shall set aside
on its books adequate reserves with respect thereto and shall pay any such Taxes
before any of its property  shall be sold to satisfy any lien which has attached
as  a  security  therefor;  and  (ii)  if  Lender  has  been  notified  of  such
proceedings.

     4.08 Insurance.  Borrower and each Subsidiary  shall keep all property of a
character usually insured by Persons engaged in the same or similar  businesses,
adequately  insured  by  financially  sound and  reputable  insurers,  and shall
furnish  Lender  evidence of such  insurance  immediately  upon  request in form
satisfactory to Lender.

     4.09 Compliance With ERISA.  Borrower and each Subsidiary shall comply,  if
applicable,  in all  material  respects,  with the  provisions  of the  Employee
Retirement Income Security Act of 1974, as amended,  and furnish to Lender, upon
Lenders  request,  such  information  concerning  any plan of  Borrower  or Bank
subject to said Act as maybe reasonably requested.  Borrower and each Subsidiary
shall notify Lender immediately of any fact or action arising in connection with
any plan which  might  constitute  grounds  for the  termination  thereof by the
Pension Benefit  Guaranty  Corporation or for the appointment by the appropriate
United States district court of a trustee or administrator for such plan.

     4.10 Financial Condition.  Subject to the provisions of Article V, Borrower
shall  cause  each of its  Subsidiaries  to  maintain  the  ratios  of  loans to
deposits,  loan loss  reserves and  liquidity at  percentages  acceptable to all
Tribunals having jurisdiction over such Subsidiaries.









First Financial Bankshares, Inc.
Loan Agreement-                                                          Page 11





     4.11  Maintenance of Priority of Liens.  Borrower and each Subsidiary shall
each perform such acts and shall duly authorize, execute, acknowledge,  deliver,
file, and record such additional  assignments,  security  agreements,  and other
agreements,   documents,  instruments,  and  certificates  as  Lender  may  deem
reasonably  necessary  or  appropriate  in order to  perfect  and  maintain  the
security interest created in favor of Lender in the Security Instruments.

     4.12 FDIC  Insurance.  Borrower  shall  cause  each  Subsidiary  which is a
depository bank to maintain federal deposit  insurance and to be a member of the
Federal Deposit Insurance Corporation.

     4.13  Notices.  Borrower  shall  promptly  notify,  and  shall  cause  each
Subsidiary  to  promptly  notify,  Lender of (i) the  occurrence  of an Event of
Default,  or of any event that with  notice or lapse of time or both would be an
Event of Default,  (ii) the  commencement  of any action,  suit,  or  proceeding
against  Borrower or any  Subsidiary  that might in the  reasonable  judgment of
Borrower have a material adverse effect on the business, financial condition, or
operations of Borrower or any Subsidiary,  and (iii) any other matter that might
in the  reasonable  judgment of Borrower have a material  adverse  effect on the
business, financial condition, or operations of Borrower or any Subsidiary.

                                    ARTICLE V

                               Negative Covenants
                               ------------------

     While any part of the  Obligations  remains  unpaid  and  unless  waived in
writing by Lender.

     5.01  Capital  Ratio.  The Borrower  shall not permit the Capital  Ratio of
Borrower to be less than eight and one-half percent  (8.50%),  calculated at the
end of each fiscal quarter.

     5.02 Return on Equity.  The Borrower  shall not permit the Return on Equity
of Borrower to be less than ten percent  (10.0%),  calculated at the end of each
fiscal quarter.

     5.03 Return on Assets.  The Borrower  shall not permit the Return on Assets
of Borrower to be less than one and two-tenths  percent  (1.20%),  calculated at
the end of each fiscal quarter based on year-to-date information.

     5.04   Non-Performing   Assets  Ratio.   Borrower   shall  not  permit  the
Non-Performing  Assets  Ratio of  Borrower  to be less than  1.75 to 1.0,  to be
calculated at the end of each fiscal quarter.

     5.05 Loan Loss Reserve  Ratio.  Borrower shall not permit Loan Loss Reserve
Ratio of Borrower to be less than one percent  (1.0%),  to be  calculated at the
end of each fiscal quarter.

     5.06  Tangible Net Worth.  The Borrower  shall not permit its  consolidated
Tangible  Net Worth to at any time be less than One  Hundred  Fifty  Million and
no/100 Dollars ( $150,000,000.00).

     5.07 Cash Flow  Coverage.  The Borrower  shall maintain at all times a Cash
Flow Coverage of not less than 1.3 to 1.0, calculated on a quarterly  annualized
basis.











First Financial Bankshares, Inc.
Loan Agreement -                                                         Page 12





     5.08 Dividends.  Borrower shall not declare or pay any dividends,  make any
payment  on  account  of any  class  of the  capital  stock of  Borrower  now or
hereafter  outstanding,  or make any distribution of cash or property to holders
of any shares of such stock  which  exceeds  fifty-five  percent  (55.0%) of the
annual Net Income.

     5.09 Business.  Borrower and each Subsidiary shall not engage,  directly or
indirectly,  in any business other than the businesses  permitted by statute and
the  regulations of the  appropriate  governmental  and  regulatory  agencies or
Tribunals.

     5.10 Disposition of Assets. Neither Borrower nor any Subsidiary shall sell,
lease, or otherwise dispose of any material part of their assets or investments,
except in the ordinary course of business.

     5.11  Limitation on Debt.  Borrower shall not, nor allow any Subsidiary to,
create,  incur, assume,  become liable in any manner in respect of, or suffer to
exist, any debt for borrowed money except:

          (a) debt,  excluding debt created under this Agreement,  not in excess
     of  $2,000,000  (which  amount  shall  not  include  any debt  acquired  by
     acquisition of another entity) at any one time outstanding;


          (b) debt created under this Agreement;

          (c) debt secured by a purchase money security interest; and

          (d)  $100,000,000  of federal  funds  purchased  and advances from the
     Federal Home Loan Bank, calculated at the end of each fiscal quarter

     5.12  Prepayment of Debt.  Except for trust  preferred  stock or other debt
acquired by  acquisition  of another  entity,  Borrower  shall not, and Borrower
shall not permit its  Subsidiaries  to prepay any of their  respective  material
debt,  other than the debt  created  under this  Agreement,  or  incurred in the
ordinary course of business before the same becomes due.

     5.13  Acquisitions,  Mergers,  and  Dissolutions.  Borrower  shall not, and
Borrower shall not permit any Subsidiary to, directly or indirectly, acquire all
or any substantial portion of the property, assets, or stock of, or interest in,
any Person,  or merge or consolidate  with any Person,  or dissolve or liquidate
except in the ordinary course of business without notifying Lender within thirty
(30) days before the closing (provided such disclosure has been made public).

     5.14 Issuance of Stock.  No Subsidiary  shall  authorize or issue shares of
stock of any  class,  common  or  preferred,  or any  warrant,  right or  option
pertaining to its capital stock or issue any security  convertible  into capital
stock, except for any issued to Borrower by any Subsidiary.












First Financial Bankshares, Inc.
Loan Agreement -                                                         Page 13





                                   ARTICLE VI

                                     Default
                                     -------

     6.01 Events of Default.  Each of the following shall be deemed an "Event of
Default":

          (a) Failure by Borrower to pay or perform any part or component of the
     Obligations,  when due or declared due and continuation of such failure for
     a period of seven (7) Business Days thereafter; or,

          (b) Any  representation or warranty made or deemed made by Borrower or
     any other Person in any Loan Documents,  or in any certificate or financial
     or other  statement  furnished  at any time to  Lender  by or on  behalf of
     Borrower shall be false, misleading or erroneous in any material respect as
     of the date made, deemed made, or furnished and failure by Borrower to cure
     the same within twenty (20) days after notice thereof is given by Lender to
     Borrower, or,

          (c) Failure to observe,  perform or comply with any of the  covenants,
     terms, or agreements contained in this Agreement or any other Loan Document
     and  failure by  Borrower  to cure the same  within  twenty (20) days after
     notice thereof is given by Lender to Borrower; or,

          (d) Failure by Borrower or any  Subsidiary  to pay any of its material
     indebtedness as the same becomes due or within any applicable  grace period
     (other than  indebtedness  being  actively  contested in good faith and for
     which adequate  reserves have been established in accordance with generally
     accepted accounting principles); or,

          (e) Borrower or any Subsidiary  shall file a petition for  bankruptcy,
     liquidation   or  any   answer   seeking   reorganization,   rearrangement,
     readjustment  of its debts or for any  other  relief  under any  applicable
     bankruptcy,  insolvency,  or similar act or law, now or hereafter existing,
     or any action  consenting  to,  approving of, or  acquiescing  in, any such
     petition or proceeding; or the appointment by consent or acquiescence of, a
     receiver,  trustee,  liquidator, or custodian for all or a substantial part
     of its  property;  or the  making  of an  assignment  for  the  benefit  of
     creditors;  or the  inability to pay its debts as they mature;  or take any
     corporate action to authorize any of the foregoing; or,

          (f)  Filing  of  an  involuntary  petition  against  Borrower  or  any
     Subsidiary   seeking   reorganization,   rearrangement,   readjustment   or
     liquidation  of its debts or for any  other  relief  under  any  applicable
     bankruptcy,  insolvency  or  other  similar  act or law,  now or  hereafter
     existing, or the involuntary appointment of a receiver, trustee, liquidator
     or  custodian  of all or a  substantial  part  of its  property,  and  such
     involuntary  proceeding or appointment  remains  unvacated,  undismissed or
     unstayed  for a period of ninety  (90) days;  or the  issuance of a writ of
     attachment, execution, sequestration or similar process against any part of
     its property and same remains unbonded,  undischarged, or undismissed for a
     period of thirty (30) days from the date of notice; or,

          (g) Final  judgment for the payment of money in an amount in excess of
     $100,000 shall be rendered  against Borrower or any Subsidiary and the same
     shall remain










First Financial Bankshares, Inc.
Loan Agreement -                                                         Page 14





     undischarged  for a period of thirty (30) days during which execution shall
     not be effectively stayed; or,


          (h) An  event  occurs  which  has a  material  adverse  affect  on the
     financial conditions or operation of Borrower or any Subsidiary; or,


          (i) A change in control of any  Subsidiary (as such or similar term is
     used in the  Financial  Institutions  Regulatory  and Interest Rate Control
     Act) shall  occur,  or action to change such  control  shall be  commenced,
     without the prior written  consent of Lender (which consent may be given or
     withheld in Lender's sole discretion); or,

          (j) This  Agreement or any other Loan Document  shall be declared null
     and void or the validity or  enforceability  thereof  shall be contested or
     challenged by Borrower or any Subsidiary or Borrower shall deny that it has
     any further liability or obligation under any of the Loan Documents; or,

          (k) Receipt by any  Subsidiary  of a notice  from the Federal  Deposit
     Insurance Corporation of intent to terminate status as an insured bank; or,


          (l) The filing by any Subsidiary of an application for relief pursuant
     to section 13(c) of 13(i) of the Federal Deposit Insurance Act, as amended,
     or similar relief from any Tribunal; or,

          (m)  The  filing  by  any  Subsidiary  an   application   for  capital
     forbearance from any Tribunal.


     6.02 Remedies Upon Default. Upon the occurrence of any Event of Default set
forth in Section  6.01,  at the option of Lender,  the  obligation  of Lender to
extend credit to Borrower  pursuant hereto shall  immediately  terminate and the
principal of and interest accrued on the Note if not earlier demanded,  shall be
immediately and automatically forthwith DEMANDED and due and payable without any
notice or demand of any kind, and the same shall be due and payable  immediately
without  any  notice,  presentment,  acceleration,  demand,  protest,  notice of
acceleration, notice of intent to accelerate, notice of intent to demand, notice
of protest or notice of any kind  (except  notice  required by law which has not
been waived herein),  all of which are hereby waived. Upon the occurrence of any
Event of Default, Lender may exercise all rights and remedies available to it in
law or in equity, under any Loan Document or otherwise.

                                   ARTICLE VII

                                  Miscellaneous
                                  -------------

     7.01 Notices.  Unless  otherwise  provided herein,  all notices,  requests,
consents  and  demands  shall be in writing and  delivered  in person or mailed,
postage prepaid, certified mail, return receipt requested, addressed as follows:

     If intended for Borrower or its Subsidiaries, to:

          FIRST FINANCIAL BANKSHARES, INC.






First Financial Bankshares, Inc.
Loan Agreement -                                                         Page 15





          P. O. Box 701
          Abilene, Texas 79604
          Attn: F. Scott Dueser

     If intended for Lender, to:

          THE FROST  NATIONAL  BANK
          100 West Houston Street
          P.O. Box 1600
          San Antonio, Texas 78296
          Attn: Jerry L. Crutsinger

or to such other person or address as either party shall  designate to the other
from  time to time in  writing  forwarded  in like  manner.  All  such  notices,
requests,  consents and demands  shall be deemed to have been given or made when
delivered in person, or if mailed, when deposited in the mails.

     7.02 Place of Payment.  All sums payable  hereunder to Lender shall be paid
at Lender's  banking  office at 100 West  Houston  Street,  P.O.  Box 1600,  San
Antonio,  Texas 78296.  If any payment  falls due on other than a Business  Day,
then such due date shall be extended to the next  succeeding  Business  Day, and
such amount shall be payable in respect to such extension.

     7.03 Survival of Agreement. All covenants, agreements,  representations and
warranties  made in this  Agreement  shall survive the execution and delivery of
this  Agreement  in the  making of the Loan.  All  statements  contained  in any
certificate or other instrument  delivered by Borrower hereunder shall be deemed
to constitute representations and warranties made by Borrower.

     7.04 No Waiver.  No waiver or consent by Lender with  respect to any act or
omission of Borrower or any Subsidiary on one occasion shall constitute a waiver
or  consent  with  respect  to any  other act or  omission  by  Borrower  or any
Subsidiary  on the same or any other  occasion,  and no  failure  on the part of
Lender to exercise and no delay in exercising any right  hereunder shall operate
as a waiver thereof,  nor shall any single or partial  exercise by Lender of any
right hereunder  preclude any other or further right of exercise  thereof or the
exercise  of any other  right.  The rights  and  remedies  provided  for in this
Agreement and the other Loan  Documents are  cumulative and not exclusive of any
rights and remedies provided by Law.

     7.05 Accounting Terms. All accounting and financial terms used herein,  and
the  compliance  with each covenant  herein which relates to financial  matters,
shall be determined in accordance with regulatory accounting principles or GAAP.

     7.06  Lender Not In  Control.  None of the  covenants  or other  provisions
contained in the Agreement  shall,  or shall be deemed to, give Lender the right
or power to exercise  control over the affairs and/or  management of Borrower or
any  Subsidiary,  the power of Lender being  limited to those  rights  generally
given to Lenders;  provided  that,  if Lender  becomes the owner of any stock or
other equity interest in Borrower or any Subsidiary whether through  foreclosure
or  otherwise,  Lender shall be entitled to exercise such legal rights as it may
have by being an owner of such stock,  or other  equity  interest in Borrower or
any Subsidiary.









First Financial Bankshares, Inc.
Loan Agreement -                                                         Page 16





     7.07  Joint  Venture,  Partnership,  Etc.  None of the  covenants  or other
provisions  contained in this Agreement shall, or shall be deemed to, constitute
or create a joint venture, partnership or any other association, affiliation, or
entity between Borrower or any Subsidiary and Lender.

     7.08 Successors and Assigns. All covenants and agreements contained in this
Agreement  and all other Loan  Documents  shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto, except that neither
Borrower nor any Subsidiary may assign its rights herein, in whole or in part.

     7.09 Expenses.  Borrower agrees to reimburse  Lender for its  out-of-pocket
expenses,   including  reasonable   attorneys'  fees,  in  connection  with  the
negotiation,  preparation,  administration  and enforcement of this Agreement or
any of the Loan  Documents,  making the Loan  hereunder,  and in connection with
amendments, consents and waivers hereunder.

     7.10 Governing Law. THIS AGREEMENT,  THE NOTE, AND ALL OTHER LOAN DOCUMENTS
SHALL BE  DEEMED  CONTRACTS  UNDER  THE LAWS OF THE  STATE OF TEXAS AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE  WITH AND GOVERNED BY THE LAWS OF THE STATE
OF TEXAS, EXCEPT TO THE EXTENT THAT FEDERAL LAWS MAY APPLY. THIS AGREEMENT,  THE
NOTE AND THE OTHER  LOAN  DOCUMENTS  SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE
PERFORMED IN SAN ANTONIO, BEXAR COUNTY, TEXAS.

     7.11  Severability.  If any  provision  of  this  Agreement  is  held to be
illegal,  invalid or unenforceable under present or future Laws effective during
the term of this  Agreement,  such  provision  shall be  fully  severable;  this
Agreement  shall be  construed  and  enforced  as if such  illegal,  invalid and
unenforceable  provision  had  never  comprised  a part of this  Agreement;  and
remaining provisions of this Agreement shall remain in full force and effect and
shall not be affected by the illegal,  invalid or unenforceable  provision or by
its severance from this Agreement.

     7.12  Modification or Waiver. No modification or waiver of any provision of
this Agreement,  the Note, or any Loan Documents shall be effective  unless such
modification  or waiver  shall be in writing and  executed by a duly  authorized
officer of Lender.

     7.13 Right of Setoff. Nothing in this Agreement shall be deemed a waiver of
Lender's right of Lender's banker's lien or setoff.

     7.14  Release.  Lender will not be liable to Borrower for any claim arising
from or relating to any of the Loan Documents or any  transactions  contemplated
thereby except upon proof of Lender's gross  negligence or wilful  misconduct or
wilful breach of its agreements.

     7.15  Waiver of DTPA.  Neither  the  Borrower  nor its  Subsidiary  is in a
significantly  disparate bargaining position and they have both been represented
by legal counsel in this transaction.  The Borrower and its Subsidiaries  hereby
waive the  applicability  of the Texas Deceptive Trade Practices Act (other than
ss.17.555)  to the  transaction  and any and all rights or remedies  that may be
available to the Borrower or any Subsidiary in connection with this transaction.











First Financial Bankshares, Inc.
Loan Agreement -                                                         Page 17





     7.16 Counterparts,  Faxes. This Agreement maybe executed  simultaneously in
multiple  counterparts,  all of which together shall constitute one and the same
instrument. If any Loan Document is transmitted by facsimile machine ("fax"), it
shall be treated for all  purposes as an original  document.  Additionally,  the
signature  of any  party on this  document  transmitted  by way of fax  shall be
considered  for all  purposes  as an original  document  and shall have the same
binding effect as an original document.

     7.17  Headings.  The  headings,  captions,  and  arrangements  used in this
Agreement are for convenience  only and shall not affect the  interpretation  of
this Agreement.

     7.18 Maximum  Interest  Rate. No provision of this Agreement or of the Note
shall require the payment or the collection of interest in excess of the maximum
amount permitted by applicable law. If any excess of interest in such respect is
hereby  provided for, or shall be adjudicated to be so provided,  in the Note or
otherwise in  connection  with this loan  transaction,  the  provisions  of this
Section 7.18 shall govern and prevail and Borrower shall not be obligated to pay
the  excess  amount  of such  interest  or any  other  excess  sum paid for use,
forbearance,  or detention of sums loaned pursuant  hereto.  In the event Lender
ever receives,  collects, or applies as interest any such sum, such amount which
would be in excess of the maximum  amount  permitted by applicable  law shall be
applied  as a  payment  and  reduction  of the  principal  of  the  indebtedness
evidenced by the Note;  and, if the principal of the Note has been paid in full,
any remaining excess shall forthwith be paid to Borrower.

     7.19 Assignment.  Participation,  or Pledge by Lender. Lender may from time
to time, without notice to Borrower. (i) pledge or encumber or assign to any one
or  more  Persons  (including,  but not  limited  to,  one or  more of  Lender's
affiliates,  subsidiaries,  or  subsidiaries  of  Lender's  affiliates)  all  of
Lender's right, title and interest in and to this Agreement,  the Loan Documents
and/or  the  collateral  securing  the Loan;  or (ii)  sell,  to any one or more
Persons,  a  participation  or  joint  venture  interest  in all or any  part of
Lender's right, title, and interest in and to this Agreement, the Loan Documents
and/or such  collateral;  and  Borrower  hereby  expressly  consents to any such
future  transaction.  Each  participant  or joint  venturer shall be entitled to
receive all information  regarding the creditworthiness of Borrower,  including,
without limitation, all information required to be disclosed to a participant or
joint venturer pursuant to any Law of any Tribunal.

     7.20  ENTIRE  AGREEMENT.  THIS  AGREEMENT  AND  THE  OTHER  LOAN  DOCUMENTS
CONSTITUTE THE ENTIRE AGREEMENT,  UNDERSTANDING,  REPRESENTATIONS AND WARRANTIES
OF THE PARTIES  HERETO AND  SUPERSEDE  ALL PRIOR  AGREEMENTS,  ARRANGEMENTS  AND
UNDERSTANDINGS  BETWEEN THE PARTIES.  THERE ARE NO ORAL  AGREEMENTS  BETWEEN THE
PARTIES.  SHOULD A CONFLICT IN ANY TERMS,  CONDITIONS OR COVENANTS EXIST BETWEEN
THIS  AGREEMENT  AND  ANY  OF  THE  LOAN  DOCUMENTS,  THIS  AGREEMENT  SHALL  BE
CONTROLLING.
















First Financial Bankshares, Inc.
Loan Agreement -                                                         Page 18





     IN WITNESS  HEREOF,  Borrower,  Lender and Guarantor,  by and through their
duly authorized officers,  have caused this Agreement to be executed the day and
year first above written.



BORROWER:                           FIRST FINANCIAL BANKSHARES, INC.





                                    By:   /S/ F. Scott Dueser
                                          --------------------------------------
                                    Its:  President
                                          --------------------------------------





LENDER:                             THE FROST NATIONAL BANK





                                    By:   /S/ Jerry L. Crutsinger
                                          --------------------------------------
                                    Its:  Senior Vice President
                                          --------------------------------------





GUARANTOR:                          FIRST FINANCIAL BANKSHARES OF DELAWARE, INC.





                                    By:   /S/ Chuck A. Cowell
                                          --------------------------------------
                                    Its:  President
                                          --------------------------------------















First Financial Bankshares, Inc.
Loan Agreement -                                                         Page 19

EX-31.1

Exhibit 31.1

Certification of
Chief Executive Officer
of First Financial Bankshares, Inc.

     I, F. Scott Dueser, President and Chief Executive Officer of First Financial Bankshares, Inc., certify that:

     1. I have reviewed this Form 10-Q of First Financial Bankshares, Inc.;

     2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectives of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 4, 2010

By:	/s/ F. SCOTT DUESER
	F. Scott Dueser
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification of
Chief Financial Officer
of First Financial Bankshares, Inc.

     I, J. Bruce Hildebrand, Executive Vice President and Chief Financial Officer of First Financial Bankshares, Inc., certify that:

     1. I have reviewed this Form 10-Q of First Financial Bankshares, Inc.;

     2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectives of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 4, 2010	By:	/s/ J. Bruce Hildebrand
		J. Bruce Hildebrand
		Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification of
Chief Executive Officer
of First Financial Bankshares, Inc.

This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and accompanies the quarterly report on Form 10-Q (the “Form 10-Q”) for the quarter ended March 31, 2010 of First Financial Bankshares, Inc.

I, F. Scott Dueser, the President and Chief Executive Officer of the Issuer certify that:

1. the Form 10-Q fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and

2. the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 4, 2010

By:	/s/ F. SCOTT DUESER
	F. Scott Dueser
	Chief Executive Officer

Subscribed and sworn to before me this 4th of May, 2010.

/s/ Gaila N. Kilpatrick Gaila N. Kilpatrick

Notary Public

My commission expires: April 15, 2013

EX-32.2

Exhibit 32.2

Certification of
Chief Financial Officer
of First Financial Bankshares, Inc.

This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and accompanies the quarterly report on Form 10-Q (the “Form 10-Q”) for the quarter ended March 31, 2010 of First Financial Bankshares, Inc.

I, J. Bruce Hildebrand, the Executive Vice President and Chief Financial Officer of the Issuer certify that:

1. the Form 10-Q fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and

2. the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 4, 2010

By:	/s/ J. Bruce Hildebrand
	J. Bruce Hildebrand
	Chief Financial Officer

Subscribed and sworn to before me this 4th of May, 2010.

/s/ Gaila N. Kilpatrick Gaila N. Kilpatrick

Notary Public

My commission expires: April 15, 2013