text: FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES 
  Notes to Consolidated Financial Statements 
  December 31, 2002, 2001 and 2000 
  
  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. 