Document:

exv10w3

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.

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	 	(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.

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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.

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     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

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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.

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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

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	 	 	 	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.

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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.

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                                                                    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.
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     "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.
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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.

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     "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

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Loan Agreement --                                                         Page 4

<PAGE>

     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

<PAGE>

     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.

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Loan Agreement -                                                          Page 6

<PAGE>

          (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

<PAGE>

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.

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Loan Agreement -                                                          Page 8

<PAGE>

     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

<PAGE>

                                   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

<PAGE>

     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

<PAGE>

     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

<PAGE>

     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

<PAGE>

                                   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

<PAGE>

     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

<PAGE>

          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

<PAGE>

     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

<PAGE>

     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

<PAGE>

     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

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