FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000
F-10
expense.  Loans are charged against the allowance for loan losses when management believes the collectibility of
the principal is unlikely.
The allowance is an amount that management believes will be adequate to absorb estimated inherent losses on
existing loans that are deemed uncollectible based upon management’s review and evaluation of the loan portfolio.
The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries).
Management’s periodic evaluation of the adequacy of the allowance is based on general economic conditions, the
financial condition of the borrower, the value and liquidity of collateral, delinquency, prior loan loss experience, and
the results of periodic reviews of the portfolio.  Accrual of interest is discontinued on a loan when management
believes, after considering economic and business conditions and collection efforts, that the borrower’s financial
condition is such that collection of interest is doubtful.
The Company’s policy requires measurement of the allowance for an impaired collateral dependent loan based on
the fair value of the collateral.  Other loan impairments are measured based on the present value of expected future
cash flows or the loan’s observable market price.  At December 31, 2002 and 2001, all significant impaired loans
have been determined to be collateral dependent and the allowance for loss has been measured utilizing the
estimated fair value of the collateral.
Other Real Estate
Other real estate is foreclosed property held pending disposition and is valued at the lower of its fair value or the
recorded investment in the related loan.  At foreclosure, if the fair value, less estimated costs to sell, of the real estate
acquired is less than the Company’s recorded investment in the related loan, a write-down is recognized through a
charge to the allowance for loan losses.  Any subsequent reduction in value is recognized by a charge to income.
Operating expenses of such properties, net of related income, and gains and losses on their disposition are included
in noninterest expense.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated depreciation and amortization.  Depreciation and
amortization are computed principally on a straight-line basis over the estimated useful lives of the related assets.
Leasehold improvements are amortized over the life of the respective lease or the estimated useful lives of the
improvements, whichever is shorter.
Business Combinations, Goodwill and Other Intangible Assets
Goodwill, relating to acquisitions of certain subsidiary banks, was amortized by the straight-line method over
periods of 15 and 40 years during the years ended December 31, 2001 and 2000.
In June 2001, Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS No. 141")
and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No.
142") were issued.  SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted
for under the purchase method and addresses the initial recognition and measurement of goodwill and other
intangible assets acquired in a business combination.  SFAS No. 142 addresses the initial recognition and
measurement of intangible assets acquired outside of a business combination and the accounting for goodwill and
other intangible assets subsequent to their acquisition.  SFAS No. 142 provides that intangible assets with finite
useful lives be amortized and that goodwill and intangible assets with indefinite lives not be amortized, but rather be
tested at least annually for impairment.  SFAS No. 142 was effective January 1, 2002 for calendar year companies;