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<SEC-DOCUMENT>0000036029-04-000039.txt : 20040325
<SEC-HEADER>0000036029-04-000039.hdr.sgml : 20040325
<ACCEPTANCE-DATETIME>20040325092811
ACCESSION NUMBER:		0000036029-04-000039
CONFORMED SUBMISSION TYPE:	DEF 14A
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20031231
FILED AS OF DATE:		20040325
EFFECTIVENESS DATE:		20040325

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			FIRST FINANCIAL BANKSHARES INC
		CENTRAL INDEX KEY:			0000036029
		STANDARD INDUSTRIAL CLASSIFICATION:	STATE COMMERCIAL BANKS [6022]
		IRS NUMBER:				750944023
		STATE OF INCORPORATION:			TX
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		DEF 14A
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-07674
		FILM NUMBER:		04688475

	BUSINESS ADDRESS:	
		STREET 1:		400 PINE STREET
		STREET 2:		P.O. BOX 701
		CITY:			ABILENE
		STATE:			TX
		ZIP:			79601
		BUSINESS PHONE:		325.627.7167

	MAIL ADDRESS:	
		STREET 1:		P.O. BOX 701
		CITY:			ABILENE
		STATE:			TX
		ZIP:			79604
</SEC-HEADER>
<DOCUMENT>
<TYPE>DEF 14A
<SEQUENCE>1
<FILENAME>proxy2004-14a.txt
<DESCRIPTION>FIRST FINANCIAL BANKSHARES, INC.-PROXY STMT.-2004
<TEXT>
                            SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

Filed by the Registrant  [X]
Filed by a Party other than the Registrant  [ ]

Check the appropriate box:
[  ]     Preliminary Proxy Statement
[  ]     Confidential, for Use of the Commission Only (as permitted by
          Rule 14a-6(e)(2))
[X]      Definitive Proxy Statement
[  ]     Definitive Additional Materials
[  ]     Soliciting Material Pursuant to Rule 14a-12

                        First Financial Bankshares, Inc.
                (Name of Registrant As Specified in its Charter)

    ------------------------------------------------------------------------
    (Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):
[X]     No fee required.
[ ]     Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

         1)       Title of each class of securities to which transaction
                  applies:    ____________________________________

         2)       Aggregate number of securities to which transaction applies:

                              ____________________________________
         3)       Per unit price or other underlying value of transaction
                  computed pursuant to Exchange Act Rule 0-11 (set forth the
                  amount on which the filing fee is calculated and state how it
                  was determined): $______________________________

         4)       Proposed maximum aggregate value of transaction: $___________

         5)       Total fee paid: $___________

[ ]      Fee paid previously with preliminary materials:  $_____________
[ ]      Check box if any part of the fee is offset as provided by Exchange
         Act Rule 0-11(a)(2) and identify the filing for which the offsetting
         fee was paid previously. Identify the previous filing by registration
         statement number, or the Form or Schedule and the date of its filing.

         1) Amount Previously Paid: $_______________________________
         2) Form, Schedule or Registration Statement No.: __________
         3) Filing Party:___________________________________________
         4) Date Filed:_____________________________________________


<PAGE>


                        FIRST FINANCIAL BANKSHARES, INC.
                                 400 Pine Street
                              Abilene, Texas 79601
                                  325.627.7155


                NOTICE OF THE 2004 ANNUAL MEETING OF SHAREHOLDERS
                            TO BE HELD APRIL 27, 2004

To our shareholders:

     We cordially  invite you to attend the annual meeting of our  shareholders,
which will be held in the Abilene Civic Center, 1100 North 6th Street,  Abilene,
Texas,  at 10:30  a.m.,  Central  time,  on  Tuesday,  April 27,  2004,  for the
following purposes:

(1)     To elect 14 directors;

(2)     To ratify the appointment by our audit committee of Ernst &
        Young LLP as our independent accountants for the year ending
        December 31, 2004;

(3)     To amend our articles of incorporation to increase the
        authorized shares of our common stock from 20,000,000 to
        40,000,000;

(4)     To act on such  other  business  as may  properly  come  before
        the  annual meeting or any adjournment thereof.

     Only shareholders of record at the close of business on March 15, 2004, are
entitled to notice of and to vote at the annual meeting or any  continuation  of
the meeting if it is adjourned.

     We have  included,  along with this  notice and proxy  statement,  our 2003
annual report, which describes our activities during 2003, and our Form 10-K for
the year ended  December 31, 2003.  The annual  report and Form 10-K do not form
any part of the material for solicitation of proxies.

     We hope that you will be present at the annual  meeting and the luncheon to
be held immediately afterward. We respectfully urge you, whether or not you plan
to attend the annual meeting,  to sign, date and mail the enclosed proxy card in
the  envelope  provided in order to  eliminate  any  question of your vote being
counted.  You can revoke  your  proxy in  writing at any time  before the annual
meeting,  so long as your written request is received by our corporate secretary
before your proxy is voted.  Alternatively,  if you submitted a proxy and attend
the annual meeting in person, you may revoke the proxy and vote in person on all
matters submitted at the annual meeting.


                                       By order of the Board of Directors,



                                       KENNETH T. MURPHY, Chairman

March 25, 2004


<PAGE>


                        FIRST FINANCIAL BANKSHARES, INC.
                                 400 Pine Street
                              Abilene, Texas 79601
                                  325.627.7155

                                 PROXY STATEMENT

                       2004 ANNUAL MEETING OF SHAREHOLDERS
                            TO BE HELD APRIL 27, 2004


                                  INTRODUCTION

     Your  board of  directors  hereby  solicits  your proxy for use at the 2004
annual meeting of our shareholders and any continuation of this meeting if it is
adjourned.  The annual  meeting will be held in the Abilene Civic  Center,  1100
North 6th Street, Abilene, Texas, at 10:30 a.m., Central time, on Tuesday, April
27, 2004.

     Our  principal  executive  office is located at 400 Pine  Street,  Abilene,
Texas 79601. Our telephone number is 325.627.7155.

     We mailed this proxy statement and the accompanying proxy card on March 25,
2004. The date of this proxy statement is March 25, 2004.

                              VOTING OF SECURITIES

Record Date

     Your board of directors has  established the close of business on March 15,
2004, as the record date for determining the shareholders entitled to notice of,
and to vote at, the annual meeting. On the record date, we had 15,486,322 shares
of our common stock outstanding.

Quorum

     In order for any business to be conducted at the annual  meeting,  a quorum
consisting  of  shareholders  having voting rights with respect to a majority of
our outstanding  common stock on the record date must be present in person or by
proxy.  You may only vote if you hold your shares directly in your name. If your
shares are held in  "street  name" by your  broker,  your  broker  will send you
instructions  on how you can  instruct  your  broker to vote your  shares.  Your
broker  generally  cannot  vote  your  shares  on  non-routine  matters  without
instructions  from you.  Shares that are  represented  at the annual meeting but
abstain from voting on any or all matters and shares that are "broker non-votes"
will be  counted  in  determining  whether a quorum  is  present  at our  annual
meeting.  A "broker  non-vote"  occurs  when a broker or  nominee  votes on some
matters on the proxy card but not others  because he does not have  authority to
do so.

Required Vote

     The  affirmative  vote of a  plurality  of the  shares  cast at the  annual
meeting is required to elect a nominee for director. The affirmative vote of the
holders of at least  two-thirds of our  outstanding  shares  entitled to vote is
required  to  approve  the  amendment  to our  articles  of  incorporation.  The
affirmative vote of a majority of shares entitled to vote is required to approve
the  ratification  of Ernst & Young LLP as our  independent  accountants  or any
other  matter that may come before the  meeting.  If you abstain  from voting or
withhold  authority to vote in the election of a director,  your  abstention  or
withholding will have no effect.  However, as to other matters,  your abstention
or  withholding  authority  will have the effect of a vote  against such matters
because approval is premised on the affirmative vote of at least two-thirds or a
majority (as the case may be) of all shares entitled to vote.  Broker  non-votes
will have no effect on the  outcome  of  director  elections,  but will count as
negative votes for all other matters.

                                      -1-


<PAGE>


Shareholder List

     A list of shareholders  entitled to vote at the annual meeting,  which will
show each  shareholder's  address and the number of shares  registered in his or
her name,  will be open to any shareholder to examine for any purpose related to
the annual  meeting.  Any  shareholder  may examine  this list  during  ordinary
business hours commencing March 25, 2004, and continuing through the date of the
annual meeting at our principal office, 400 Pine Street, Abilene, Texas 79601.

                    SOLICITATION AND REVOCABILITY OF PROXIES

Solicitation

     We  will  bear  the  expense  to  solicit   proxies,   which  will  include
reimbursement  of expenses  incurred by  brokerage  firms and other  custodians,
nominees and fiduciaries to forward solicitation  materials regarding the annual
meeting to beneficial  owners.  Our officers and  directors may further  solicit
proxies from shareholders and other persons by telephone or oral  communication.
We will not pay these officers any extra  compensation for participating in this
solicitation.

Proxies and Revocation

     Each  executed  and  returned  proxy  card will be voted  according  to the
directions indicated on that proxy card. If no direction is indicated, the proxy
will be voted  according to the board of directors'  recommendations,  which are
contained in this proxy  statement.  Your board of directors  does not intend to
present,  and has no information  that others will present,  any business at the
annual  meeting that  requires a vote on any other  matter.  If any other matter
requiring a vote properly comes before the annual  meeting,  the proxies will be
voted in the discretion of the proxyholders named on the proxy.

     Each  shareholder  giving a proxy  has the  power to  revoke it at any time
before the shares of our common stock it represents are voted.  This  revocation
is effective  upon receipt,  at any time before the annual  meeting is called to
order, by our corporate secretary of either (1) an instrument revoking the proxy
or (2) a duly  executed  proxy  bearing a later date than the  preceding  proxy.
Additionally,  a shareholder may change or revoke a previously executed proxy by
voting in person at the annual meeting.

                                   PROPOSAL 1

                              ELECTION OF DIRECTORS

General

     Your board of directors  currently consists of 14 directors.  At the annual
meeting, 14 directors are to be elected,  each for a term of one year. Under our
bylaws,  an  individual  may not stand for election or  reelection as a director
upon  attaining 72 years of age,  unless he owns at least 1% of the  outstanding
shares of our  common  stock and is less than 75 years of age.  While our bylaws
fix the  number of  directors  at a number not less than three nor more than 30,
the board of directors  has fixed the number of directors at 14.  Although we do
not  contemplate  that any of the  nominees  will be unable to serve,  if such a
situation  arises before the annual meeting,  the proxies will be voted to elect
any substitute nominee or nominees designated by your board of directors.

     Under Nasdaq rules, a majority of your board of directors must be comprised
of independent  directors.  The board has determined  that each director  except
Messrs. Dueser, Murphy and Parker is independent under applicable Nasdaq rules.

                                      -2-


<PAGE>


         Nominees

     The names and  principal  occupations  of the  nominees,  together with the
length of  service as a  director  and the number of shares of our common  stock
beneficially  owned by each of them on  February  1, 2004,  are set forth in the
following table, except as otherwise  indicated,  the named beneficial owner has
sole voting and investment power with respect to shares held by him or her:

<TABLE>
<CAPTION>
                                                                                      Shares of
                                       Years as                                      Bankshares       Percent
                                       Director    Principal Occupation             Beneficially     of Shares
Name                           Age        (1)      During Last Five Years               Owned       Outstanding
- ----                           ---        ---      ----------------------               -----       -----------
<S>                             <C>       <C>     <C>                              <C>               <C>
Joseph E. Canon                 61         8       Executive Director,                  8,921         0.06%
                                                     Dodge Jones Foundation, a
                                                     private charitable foundation

Mac A. Coalson                  64         8       Real Estate and Ranching           166,105         1.07%

David Copeland                  48         6       President, Shelton Family           85,412 (2)     0.55%
                                                     Foundation, a private
                                                     charitable foundation

F. Scott Dueser**               50        13       See "Executive Officers" on        161,161 (3)(4)  1.04%
                                                     page 6

Derrell E. Johnson              64         4       President, American Council         30,000         0.19%
                                                     of Engineering Companies
                                                     Life Health Trust

Kade L. Matthews                45         6       Ranching and Investments           142,118         0.92%

Raymond A. McDaniel, Jr.        70        12       Investments                         68,827 (5)     0.44%

Bynum Miers                     67        12       Ranching                            42,827 (6)     0.28%

Kenneth T. Murphy               66        33       See "Executive Officers" on        237,814 (4)     1.54%
                                                     page 6

James M. Parker**               73        32       President, Parker Properties,      548,237 (7)     3.54%
                                                     Inc.

Jack D. Ramsey, M.D.            73         7       Physician                          155,403         1.00%

Dian Graves Stai                63        11       Investments                         54,445         0.35%

F. L. Stephens                  65         6       Retired Chairman and Chief          40,750         0.26%
                                                     Executive Officer, Town &
                                                     Country Food Stores, Inc.

Johnny E. Trotter               52         1       Ranching, Farming and Cattle        58,996         0.38%
                                                     Feeding

Shares beneficially owned by all executive officers and directors*                  1,813,961 (4)    11.72%

</TABLE>

* See "Security Ownership of Certain Beneficial Owners and Management."
** Mr.  Dueser is the son-in-law of Mr. Parker.
(1)  The years  indicated  are the  approximate  number of years each person has
     continuously  served as a director,  or, prior  thereto,  of First National
     Bank of Abilene,  which became our  wholly-owned  subsidiary in April 1973,
     when all the then  directors of First  National Bank of Abilene  became our
     directors.
(2)  Includes  77,411  shares  that are owned by trusts  for which Mr.  Copeland
     serves as trustee or co-trustee to which he disclaims beneficial ownership.
     Mr. Copeland is also a director of Harte-Hanks, Inc.
(3)  Includes 3,099 shares of our common stock issuable upon exercise of options
     presently  exercisable or  exercisable  within 60 days of February 1, 2004.
     Also  includes  28,541  shares  owned by his  wife of  which  he  disclaims
     beneficial ownership.
(4)  Includes  shares  indirectly  owned as of  February  1,  2004  through  the
     employee stock ownership plan portion of the profit sharing plan which each
     participant has sole voting powers,  as follows:  Mr. Murphy - 33,134,  Mr.
     Dueser - 16,265  and all  executive  officers  and  directors  as a group -
     54,191.
(5)  Includes 2,850 shares of our common stock owned by Mr.  McDaniel's  spouse.
     (6) Includes  6,700 shares of our common stock owned by Mr. Miers'  spouse.
     (7) Includes 201,073 shares of our common stock for which Mr. Parker serves
     as trustee.

                      THE BOARD OF DIRECTORS RECOMMENDS YOU
               VOTE "FOR" THE ELECTION OF EACH OF THESE NOMINEES.

                                      -3-

                                   PROPOSAL 2

             RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS

     The audit  committee of your board of directors has selected  Ernst & Young
LLP to serve as our independent certified public accountants for the year ending
December  31,  2004 and to serve  until the next  annual  meeting in April 2005.
Ernst & Young LLP has  served as the  Company's  independent  accountants  since
2002. We have been advised by Ernst & Young LLP that neither its firm nor any of
its members has any financial interest,  direct or indirect,  in us, nor has had
any  connection  with us or any of our  subsidiaries  in any capacity other than
independent  accountants.  Your board of directors  recommends that you vote for
the ratification of the selection of Ernst & Young LLP. Shareholder ratification
of the  selection  of Ernst & Young LLP as our  independent  accountants  is not
required by our articles of  incorporation,  bylaws or otherwise.  Nevertheless,
your board of directors is submitting this matter to the shareholders as what we
believe  is a matter of good  corporate  practice.  If the  shareholders  do not
ratify the appointment of Ernst & Young LLP, then the appointment of independent
accountants  will be reconsidered  by our audit  committee.  Representatives  of
Ernst & Young LLP are expected to be present at the annual shareholders meeting,
and they may have the opportunity to make a statement,  if they desire to do so,
and to respond to appropriate questions.

     We retained Ernst & Young LLP to serve as our independent auditors for 2002
and 2003,  effective May 16, 2002. Arthur Andersen LLP served as our independent
auditors for 2001 and 2000.  The decision not to renew the  engagement of Arthur
Andersen was effective  March 25, 2002, and was made by the executive  committee
of our board of  directors,  acting on  behalf  of the  board of  directors  and
following the recommendation of our audit committee.

     During the years ended  December 31, 2001 and 2000,  and the interim period
through  March 25,  2002,  there  were no  disagreements  between  us and Arthur
Andersen  on  any  matter  of  accounting  principles  or  practices,  financial
statement disclosure, or auditing scope or procedure, which disagreements if not
resolved  to Arthur  Andersen's  satisfaction  would  have  caused  them to make
reference to the subject  matter of the  disagreement  in connection  with their
reports.

     None  of  the  reportable  events  described  under  Item  304(a)(1)(v)  of
Regulation  S-K  occurred  within  the two  most  recent  fiscal  years  and the
subsequent  interim  period  through March 15, 2003. The audit reports of Arthur
Andersen on our consolidated  financial  statements for the years ended December
31, 2001 and 2000, did not contain any adverse opinion or disclaimer of opinion,
nor  were  they  qualified  or  modified  as to  uncertainty,  audit  scope,  or
accounting principles.  We provided Arthur Andersen with a copy of the foregoing
disclosure,  and a copy of their  letter  stating  their  agreement  with  these
statements was filed as an exhibit to our Form 8-K dated March 25, 2002.

            THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE
              RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP.

                                      -4-


<PAGE>


                                   PROPOSAL 3

                 AMENDMENT TO RESTATED ARTICLES OF INCORPORATION
                          TO INCREASE AUTHORIZED SHARES

     Our  restated  articles of  incorporation  currently  authorize  20,000,000
shares,  par value $10.00 per share,  which we frequently refer to as our common
stock.  Because  approximately   15,490,000  shares  are  currently  issued  and
outstanding,  we have less than 5,000,000 shares available for future issuances.
Accordingly,  we  believe  it is  necessary  to  increase  our  total  number of
authorized shares to 40,000,000 so that we have the flexibility in the future to
issue  more  shares,  whether  as a  stock  dividend,  as  consideration  for an
acquisition,  in  accordance  with our stock option plans,  to raise  additional
capital or otherwise.  Although the proposed  increase in our authorized  shares
could be  construed  as having  anti-takeover  effects,  neither  your  board of
directors nor our management views this proposal in that perspective, and we are
not  aware of any  takeover  bid at this  time.  Your  board of  directors  have
approved this  amendment,  but your approval is also required under Texas law to
amend our restated  articles of incorporation.  Therefore,  we are asking you to
vote on the following resolution:

     RESOLVED,  that the Restated  Articles of  Incorporation of First Financial
Bankshares, Inc. be amended to increase the total number of authorized shares so
that the Corporation is authorized to issue 40,000,000 shares, to be effected by
amending Article Four of the Corporation's Restated Articles of Incorporation to
read in its entirety as follows:

        "The aggregate number of shares that the Corporation shall
        have authority to issue is 40,000,000 of the par value of Ten
        Dollars ($10.00) each."

            THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE
                  AMENDMENT AND INCREASE IN AUTHORIZED SHARES.

                                      -5-


<PAGE>


Executive Officers

     Set forth in the following table are our executive officers, and the shares
of our common stock  beneficially  owned by each of them as of February 1, 2004,
except as otherwise  indicated,  the named executive officer has sole voting and
investment power with respect to the shares he holds:

<TABLE>
<CAPTION>

                                                   Years                                    Shares of
                                                   Served                                   Bankshares     Percent of
                                                   in Such    Principal Occupation         Beneficially      Shares
Name                     Age   Office               Office    During Past 5 Years             Owned        Outstanding
- ----                     ---   ------               ------    -------------------             -----        -----------
<S>                      <C>   <C>                    <C>     <C>                           <C>               <C>
Kenneth T. Murphy        66    Chairman               17      Chairman, First Financial     237,814 (1)       1.54%
                                                              Bankshares, Inc.;
                                                              Chairman, President and
                                                              Chief Executive Officer,
                                                              First Financial
                                                              Bankshares, Inc.
                                                              (1986-2000); Chairman,
                                                              First National Bank of
                                                              Abilene* (1993-2000)
F. Scott Dueser          50    President and                  President and Chief           161,161 (1)(2)    1.04%
                               Chief Executive         3      Executive Officer of
                               Officer                        First Financial
                                                              Bankshares, Inc.;
                                                              Chairman, First National
                                                              Bank of Abilene*;
                                                              President and Chief
                                                              Executive Officer, First
                                                              National Bank of Abilene*
                                                              (1991-2001); Executive
                                                              Vice President of First
                                                              Financial Bankshares,
                                                              Inc. (1999-2001)
Gary S. Gragg            44    Senior Vice             7      Senior Vice President of        4,989 (1)(3)    0.03%
                               President                      First Financial
                                                              Bankshares, Inc.
J. Bruce Hildebrand      48    Executive Vice                 Executive Vice President          717 (1)       -
                               President and           1      and Chief Financial
                               Chief Financial                Officer of First
                               Officer                        Financial Bankshares,
                                                              Inc.; Partner, KPMG LLP
                                                              (1990-2002)
Robert S. Patterson      63    Senior Vice            10      Senior Vice President of        7,239 (1)(4)    0.05%
                               President                      First Financial
                                                              Bankshares, Inc.
Gary L. Webb             46    Executive Vice          1      Executive Vice President            -           -
                               President                      of First Financial
                                                              Bankshares, Inc.;
                                                              Managing Partner,
                                                              BearingPoint (2002);
                                                              Partner, Arthur Andersen
                                                              (2001-2002); Senior
                                                              Manager, Arthur Andersen
                                                              (1998-2001)

</TABLE>

*A bank subsidiary.
(1)  Includes  shares  indirectly  owned as of  February  1,  2004  through  our
     employee stock  ownership  plan portion of the profit  sharing plan,  which
     each  participant has sole voting power,  as follows:  Mr. Murphy - 33,134,
     Mr.  Dueser - 16,265,  Mr.  Gragg - 1,897,  Mr.  Hildebrand  - 81,  and Mr.
     Patterson - 2,814.
(2)  Includes 3,099 shares of our common stock issuable upon exercise of options
     presently  exercisable or  exercisable  within 60 days of February 1, 2004.
     Also  includes  28,541  shares  owned by his  wife of  which  he  disclaims
     beneficial ownership.
(3)  Includes 2,419 shares of our common stock issuable upon exercise of options
     presently exercisable or exercisable within 60 days of February 1, 2004.
(4)  Includes 4,175 shares of our common stock issuable upon exercise of options
     presently exercisable or exercisable within 60 days of February 1, 2004.

                                      -6-


<PAGE>


                                   MANAGEMENT

     Amounts and prices related to shares of our common stock have been adjusted
to give effect to all stock splits and stock dividends.

Executive Compensation

     The following  table provides  individual  compensation  information on our
chief  executive  officer and our most  highly  compensated  executive  officers
during 2003 whose total annual salary and bonus was in excess of $100,000.

                           Summary Compensation Table

<TABLE>
<CAPTION>

                                                                                         Long Term
                                                                                       Compensation
                                                                                           Awards
                                                                 Annual             -----------------------
                                                              Compensation               Securities             All Other
                                                          ---------------------     -----------------------        Compensation
Name and Principal Position                         Year  Salary ($)   Bonus ($)   Underlying Options(#)(1)         ($)(2)
- ---------------------------                         ----  ---------------------     ------------------------    -------------------
<S>                                                 <C>     <C>       <C>                 <C>                   <C>
Kenneth T. Murphy, Chairman of the Board
     First Financial Bankshares, Inc.               2003           -        -                 -                 $345,514 (3)
                                                    2002    $351,635        -                 -                   24,445 (2)
                                                    2001     332,000        -                 -                   17,729 (2)


F. Scott Dueser, President and Chief                2003     356,000        -             4,375                   12,259 (2)
   Executive Officer                                2002     336,000  $45,423                 -                   26,247 (2)
     First Financial Bankshares, Inc.               2001     310,000        -                 -                   20,521 (2)


J. Bruce Hildebrand, Executive Vice President       2003     200,000        -             2,500                   12,259 (2)
   and Chief Financial Officer                      2002      16,667        -                 -                        -
    First Financial Bankshares, Inc.                2001           -        -                 -                        -


Robert S. Patterson, Senior Vice President
    First Financial Bankshares, Inc.                2003     158,333        -             1,875                   10,282 (2)
                                                    2002     154,167        -                 -                   18,516 (2)
                                                    2001     149,167        -                 -                   19,445 (2)


Gary L. Webb, Executive Vice President
    First Financial Bankshares, Inc.                2003     166,667   15,000             2,500                        -
                                                    2002           -        -                 -                        -
                                                    2001           -        -                 -                        -

</TABLE>

(1) Adjusted for stock splits and stock dividends.
(2) Represents the contributions we made to our profit sharing plan for the
     benefit of such officer.
(3) Represents amount paid under his consulting agreement, pension plan and
     deferred compensation agreement.

                                      -7-


<PAGE>


     The  following  table sets forth  certain  information  concerning  options
exercised during the last fiscal year by the named executive officers.

                 Aggregated Option Exercises in Last Fiscal Year
                        and Fiscal Year End Option Values

<TABLE>
<CAPTION>

                                                            Number of Securities           Value of Unexercised
                                                           Underlying Unexercised           In-the-Money Options
                              Shares                   Options at Fiscal Year End (#)     at Fiscal Year End ($)(1)
                            Acquired on      Value      ---------------------------      ---------------------------
Name                       Exercise (#)   Realized ($)  Exercisable   Unexercisable      Exercisable   Unexercisable
- ----                       ------------   ------------  -----------   -------------      -----------   -------------
<S>                              <C>      <C>               <C>            <C>            <C>            <C>
Kenneth T. Murphy                  -      $         -           -              -          $     -        $       -

F. Scott Dueser                  756           13,525           -          9,037                -          154,150

J. Bruce Hildebrand                -                -           -          2,500                -           25,800

Robert S. Patterson              250            4,755       1,030          5,770           18,231          121,267

Gary L. Webb                       -                -           -          2,500                -           25,800

</TABLE>

(1) Based upon the closing price per share of our common stock of $41.12 on
     December 31, 2003.


Stock options were issued to Mr. Dueser, Mr.  Hildebrand,  Mr. Patterson and Mr.
Webb during the year ended December 31, 2003,  totaling 4,375,  2,500, 1,875 and
2,500 shares, respectively.

Compensation pursuant to Employee Benefit Plans

General

     We have both a defined  benefit  pension plan and a profit sharing plan. An
employee  is  eligible to become a  participant  in the pension  plan and profit
sharing plan on the January 1 coincident with or immediately  following the date
his employment begins. See changes made to these plans described below. With our
subsidiary  banks, we adopted a flexible  spending  account benefit plan for all
employees  that  became  effective  in  1988.  First  Financial  Bank,  National
Association,  Cleburne, adopted these plans effective in 1991. Stephenville Bank
& Trust Co.  adopted  these plans  effective in 1993.  San Angelo  National Bank
adopted the pension and flexible spending account benefit plan effective in 1994
and profit  sharing plan  effective in 1995.  Weatherford  National Bank adopted
these plans  effective in 1996.  First  Financial  Bank,  National  Association,
Southlake,  adopted all benefit  plans  effective in 1998.  City  National  Bank
adopted all benefit plans effective in 2002. First Technology Services, Inc. and
First Financial Trust & Asset Management Company, National Association,  adopted
all benefit plans effective in 2003.

Profit Sharing Plan

     We, and each of our  subsidiaries  that  participates in the profit sharing
plan,  determine  on an annual basis the  contribution  that it will make to the
profit sharing plan from such employer's operating profits.  Contributions under
the  profit  sharing  plan  are  administered  by  the  compensation  committee.
Effective  January 1, 2002, we added a 401(k) feature to our profit sharing plan
which  allows  the  participants  to make  pre-tax  contributions  to the  plan.
Effective  January 1, 2004,  the plan includes a safe harbor Company match equal
to 100% of each  Participant's  deferral  contributions  not exceeding 3% of the
Participant's   compensation,   plus   50%  of   each   Participant's   deferral
contributions  in  excess of 3%,  but not in  excess of 5% of the  Participant's
compensation.  Prior to January 1, 2004,  the plan did not  include a  mandatory
Company match but did provide a safe harbor profit sharing contribution equal to
3% of the qualifying participant's compensation.  Under the profit sharing plan,
contributions  by employees  are not  required as a condition of  participation.
Each  participating  employer's  annual  contribution  is  allocated  among  the
accounts of the active plan participants employed by such employer, in the ratio
that each  participant's  compensation  bears to the total  compensation  of all
participants of such employer.  Compensation is defined as the total amount paid
to an employee during the year,  including  bonuses,  commissions,  and overtime
pay, but excluding reimbursed expenses, group insurance benefits and pension and
profit sharing  contributions.  However, the Internal Revenue Service limits the
compensation  amount used to calculate a  participant's  benefit to a maximum of

                                      -8-


<PAGE>


$200,000.  Additionally,  the annual  addition amount (which is the aggregate of
employer and employee  contributions)  that may be allocated to a participant is
limited to $40,000.

     Effective  July 1, 2003, we added an employee  stock  ownership plan (ESOP)
feature  to our profit  sharing  plan.  Shares of our  common  stock held by the
profit  sharing plan were allocated to participants generally based on the ratio
that each  participant's  balance  bears to the  total  balances  in the  profit
sharing  plan.  Participants  are given the option to receive cash  dividends on
these shares in cash or reinvest the dividends in additional shares.

     The  profit  sharing  plan  provides  for  benefits  to vest  in  graduated
percentages for the first six years of participation,  with benefits being fully
vested after seven years of credited  service except for amounts  contributed to
an employee's account under the safe harbor provisions and shares resulting from
the  reinvestment of dividends in the ESOP which are  immediately  fully vested.
Generally,  an employee's benefit at normal retirement will be the contributions
allocated to his account while a  participant,  increased by gains and decreased
by losses  from  investments  of the trust,  and  increased  by any  forfeitures
allocated to his account. An employee is always fully vested with respect to any
voluntary  contributions he makes. The plan also provides for immediate  vesting
upon  attainment of normal  retirement  age and upon death or  disability.  If a
participant  terminates employment for any other reason, the total amount of his
employee   contribution   account  and  the  vested   portion  of  his  employer
contribution account are distributed to him.

Pension Plan

     The pension plan requires  annual  contributions  sufficient to provide the
pension  benefits  accruing  to  employees  under the pension  plan.  The annual
benefit  for a  participant  in the  pension  plan  who  retires  on his  normal
retirement  date is the accrued  benefit  (as  defined in the  pension  plan) at
December 31, 1988,  plus 1.25% of average  compensation  multiplied  by years of
service from January 1, 1989. "Average compensation" is the average compensation
during  the  10  years   immediately   preceding  the  date  of   determination.
Compensation  means  the  total  amount  paid to an  employee  during  the  year
including  bonuses,  commissions,  and overtime  pay, but  excluding  reimbursed
expenses, group insurance benefits and pension and profit sharing contributions.
There are  provisions  in the pension  plan for early  retirement  with  reduced
benefits.  There is no vesting of benefits until a participant  has five or more
years of credited  service or upon  reaching  age 65 without  regard to credited
service.  Effective  January  1,  2004,  the  pension  plan  was  frozen  and no
additional benefits will accrue under the plan after this date.

     The pension  plan is subject to the  minimum  funding  requirements  of the
Employee  Retirement Income Security Act of 1974, or ERISA. Our contributions to
the pension plan,  including those of our  participating  subsidiary banks, have
been $621,030 in 1999; $754,416 in 2000; $742,923 in 2001; $726,989 in 2002; and
$1,038,031 in 2003.

     The following table  illustrates  estimated  retirement  benefits under the
pension  plan for  persons  in  specified  remuneration  and  years  of  service
categories,  which benefits are payable  annually for life (but in no event less
than 10 years).  The  benefits  listed in the table below are not subject to any
deduction  for social  security  or other  offset  amounts.  This table does not
reflect any benefit that a participant may have accrued at December 31, 1988.

                               PENSION PLAN TABLE

<TABLE>
<CAPTION>

                                                                             Years of Service
                                                         ----------------------------------------------------------
 Remuneration                                               15          20          25          30          35
 ------------
                                                         ----------  ----------  ----------  ----------  ----------
<S>                                                      <C>         <C>         <C>         <C>         <C>
 $   25,000                                              $   4,688   $   6,250   $   7,813   $   9,375   $  10,938
     50,000                                                  9,375      12,500      15,625      18,750      21,875
     75,000                                                 14,063      18,750      23,438      28,125      32,813
    100,000                                                 18,750      25,000      31,250      37,500      43,750
    125,000                                                 23,438      31,250      39,063      46,875      54,688
    150,000                                                 28,125      37,500      46,875      56,250      65,625
    175,000                                                 32,813      43,750      54,688      65,625      76,563
    200,000                                                 37,500      50,000      62,500      75,000      87,500

</TABLE>

                                      -9-


<PAGE>


     As of December 31, 2002,  Mr. Murphy was credited with 32 years of service,
at which time he began receiving payments under the pension plan. As of December
31, 2003, Mr. Dueser was credited with 27 years of service,  Mr.  Hildebrand was
credited with one year of service and Mr. Patterson was credited with nine years
of service.  The covered  compensation of Mr. Dueser and Mr.  Hildebrand  during
2003 was  $200,000,  and for Mr.  Patterson was  $158,333.  The maximum  covered
compensation  is $200,000.  Mr. Webb began  employment in March 2003 and was not
credited with any years of service.

Flexible Spending Account Benefit Plan

     With our subsidiaries, we have a flexible spending account benefit plan. An
employee is eligible  to become a  participant  in this plan on the first day of
the month following  completion of two months of service.  The flexible spending
account  benefit plan allows each  participant  to redirect a portion of his/her
salary, before taxes, to pay certain medical and/or dependent care expenses.

Deferred Compensation Agreement

     In  1992,  your  board  of  directors  approved  a  deferred   compensation
agreement, which was amended in 1995, between Mr. Murphy and us. We entered into
this agreement in recognition of Mr. Murphy's contribution to our success and as
an  inducement  to him to  remain,  subject to the  discretion  of your board of
directors, in our employ. This agreement provided that, following his retirement
in December  2002, we would pay him, or his  beneficiary,  the sum of $8,750 per
month for a period of 84 months.  The  monthly  amount was  considered  to be an
appropriate  level of  supplemental  income to  partially  offset  Mr.  Murphy's
reduction in personal income  following  retirement and was based on an analysis
of  the  difference  in  projected  final  year   compensation   and  retirement
compensation.  Effective  January 1, 2003,  Mr. Murphy began  receiving  monthly
payments of $8,750 as provided under the terms of this agreement.

Executive Recognition Plan

     In April 1996, our outside  directors,  who  constituted a majority of your
board of directors,  unanimously  approved an executive  recognition  plan. This
plan enables us, upon approval of the compensation  committee,  to offer our key
executive  officers  and  those of our  subsidiaries  an  executive  recognition
agreement.  Mr. Dueser, Mr. Gragg, Mr. Hildebrand,  Mr. Patterson,  Mr. Webb and
our other senior  officers have entered into  executive  recognition  agreements
with us. Each executive  recognition  agreement  provides severance benefits for
each  executive  officer if, within two years  following a change in control (as
defined in the executive recognition agreements),  his employment with us or our
subsidiaries  is  terminated by us or the  subsidiary  bank for any reason other
than for cause (as defined in the executive recognition  agreements) (except for
terminations  as a result of the officer's  death,  disability or retirement (as
such  terms are  defined in the  executive  recognition  agreements))  or by the
executive  officer  for good  reason (as  defined in the  executive  recognition
agreements).  Such severance  benefits  provide that the executive  officer will
receive a payment equal to a certain  percentage  (as set forth in his executive
recognition  agreement) of his annual base salary immediately preceding the date
of  termination  and,  for two  years  following  the date of  termination,  the
continuation  of all medical,  life and  disability  benefit plans  covering the
officer at no cost to the officer.  With respect to Mr. Dueser,  Mr.  Hildebrand
and Mr. Webb,  the percentage of annual base salary to be received upon a change
in control pursuant to his executive recognition agreement is 200%. With respect
to Mr. Gragg and Mr.  Patterson,  the  percentage is 100%.  The total  severance
payment for the executive officer cannot,  however, exceed the amount that would
cause such payment to be deemed a "parachute  payment" under Section 280G of the
Internal Revenue Code.

     Each executive recognition agreement has a term of two years. However, if a
change in control  occurs during the original term of the executive  recognition
agreements,  then the executive  recognition  agreements will continue in effect
for  an  additional  period  of two  years  following  the  change  in  control.
Similarly,  if a second change in control  occurs within two years from the date
of the first change in control, then the executive  recognition  agreements will
continue in effect for a period of two years from the date of the second  change
in control.

Stock Option Plan

     At the 2002 annual meeting of shareholders, our 2002 incentive stock option
plan was  approved  and  adopted.  The  purposes of the stock option plan are to
attract  and retain key  employees  and to  encourage  employee  performance  by

                                      -10-


<PAGE>


providing  them with a proprietary  interest in us through the granting of stock
options.  The maximum aggregate number of shares of our common stock that may be
issued  under  the 2002  incentive  stock  option  plan is  625,000  subject  to
adjustment  for stock  dividends  and similar  events.  The stock option plan is
administered  by our  compensation  committee.  Only incentive stock options (as
defined in the  Internal  Revenue  Code) may be granted  under the stock  option
plan.  Incentive  stock  options  granted  under  the stock  option  plan may be
exercised  solely  by the  grantee,  or in the  case of the  grantee's  death or
incapacity, by the grantee's executors, administrators, guardians or other legal
representatives  and are not  assignable or  transferable  by a grantee.  During
2003, 71,560 stock options were issued to certain of our officers under the 2002
incentive stock option plan.

     Our 1992 incentive stock plan expired in 2002 and no additional options may
be granted  under this plan.  Options  totaling  109,790 are  exercisable  as of
December  31, 2003,  under  the 1992  incentive  stock  option  plan and will be
exercisable  through 2012 under the terms of the plan.  There were 2,000 options
granted  subsidiary  bank officers  during 2002 under the 1992  incentive  stock
plan.

Consulting Agreement

     Effective January 1, 2003, we entered into a consulting  agreement with Mr.
Murphy whereby Mr. Murphy provided  various  services to us and our subsidiaries
with  respect to  strategic  planning  and  potential  acquisitions  among other
things.  The term of the  agreement  was one year and  compensation  payable was
$14,583 per month.  The agreement was renewed for one year effective  January 1,
2004, under similar terms except the monthly  compensation was reduced to $8,333
per month.

Meetings of the Board of Directors

     Your board of directors has four  regularly  scheduled  meetings each year.
Each of the  directors  attended  at least 75% of the  meetings  of the board of
directors  and the  committees  of the board of directors on which such director
served.

     Although we do not have a formal policy regarding  attendance by members of
the board of directors at the our annual meeting of  shareholders,  we encourage
directors  to attend and  historically  more than a  majority  have done so. For
example, 100% of the directors attended the 2003 annual meeting of shareholders.

Committees of the Board of Directors

     Your board of directors  has four  committees.  The  functions  and current
members of each committee are as follows:

     Executive  Committee.  The  executive  committee  acts  for  your  board of
directors between board meetings,  except to the extent limited by our bylaws or
Texas law. The current members are Messrs. Coalson,  Copeland, Dueser, McDaniel,
Murphy,  Parker, Ramsey and Stephens. The executive committee also functioned in
2003 as the nominating committee.  All current directors are being nominated for
election as director for 2004. A separate  independent  nominating  committee is
being proposed  beginning  with the meeting of our board of directors  scheduled
for April 27, 2004. The  nominating  committee will follow the guidelines of the
nominating  committee  charter that was approved by the  executive  committee of
your board of directors.  Our nominating  committee  charter is available on our
web site at http://www.ffin.com. The foregoing is also available in print to any
shareholder who requests it. The executive committee met six times during 2003.

     Historically,  we have not had a formal process by which a shareholder  may
nominate an  individual  to stand for  election to the board of directors at our
annual  meeting  of  shareholders.  Nor have we had a formal  policy  concerning
shareholder recommendations to the nominating committee (or its predecessor, the
executive  committee).  To date, we have not received any  recommendations  from
shareholders  requesting  that the executive  committee or nominating  committee
consider a  candidate  for  inclusion  among the slate of  nominees in our proxy
statement.  The  absence  of  such a  policy  does  not  mean,  however,  that a
recommendation  would  not  have  been  considered  had one  been  received.  We
anticipate that the nominating  committee will consider this matter fully during
the upcoming year with a view to adopting and publishing a policy on shareholder
recommendations  for  director  nominees  before  our  2005  annual  meeting  of
shareholders.

                                      -11-


<PAGE>

     Historically,  our goal  has been to  assemble  a board of  directors  that
brings to us a variety of  perspectives  and skills  derived  from high  quality
business and  professional  experience.  The committee has generally  considered
factors such as:

     o    our needs with respect to the particular talents and experience of our
          directors;

     o    the knowledge,  skills and experience of nominees,  particularly  with
          respect to the  community  banking  business in North Central and West
          Texas;

     o    a nominee's experience with accounting rules and practices;

     o    appreciation  of the  relationship  of  our  banking  business  to the
          communities we serve; and

     o    other  requirements  that  may  be  imposed  by  the  bank  regulatory
          agencies.

     Under our bylaws, an individual may not stand for election or reelection as
a director upon attaining age 72 years of age, unless he owns at least 1% of the
outstanding  shares  of our  common  stock  and is less  than 75  years  of age.
Otherwise, there are no stated minimum criteria for director nominees. We expect
that the  nominating  committee will identify  nominees by first  evaluating the
current  members of your board of  directors  willing to  continue  in  service.
Current members of the board with skills and experience that are relevant to our
business  and who are wiling to  continue  in  service  will be  considered  for
re-nomination,  balancing the value of continuity of service by existing members
of the board  with that of  obtaining  a new  perspective.  If any member of the
board does not wish to continue in service or if the nominating committee or the
board decides not to re-nominate a member for  re-election,  we anticipate  that
the  nominating  committee  will identify the desired skills and experience of a
new nominee in light of the criteria above and begin a search for  appropriately
qualified individuals. To date, we have not engaged third parties to identify or
evaluate or assist in identifying  potential  nominees,  although we reserve the
right in the future to retain a third party search firm, if necessary.

     Historically,  we  have  not  adopted  a  formal  process  for  shareholder
communications  with the  board.  Nevertheless,  we  believe  we have made every
effort  to  ensure  that the views of  shareholders  are heard by your  board of
directors or individual directors, as applicable, and that appropriate responses
are provided to  shareholders  in a timely  manner.  During the upcoming year we
expect  the board  will  give full  consideration  to the  adoption  of a formal
process for  shareholder  communications  with it and,  if  adopted,  publish it
promptly and post it to our web site.

     Audit Committee.  The audit committee  reviews the scope and results of the
annual audit by our independent auditors,  and receives and reviews internal and
external audit reports. Its members include Messrs. Copeland, Johnson, McDaniel,
Miers and  Trotter.  We  believe  that each  member  of the audit  committee  is
independent under The Nasdaq National Market listing standards. During 2003, the
audit  committee met four times.  The board of directors has determined  that it
believes all audit committee members are financially  literate under the current
listing  standards  of Nasdaq.  The board also  determined  that it believes Mr.
Copeland  qualifies as an "audit committee  financial  expert" as defined by the
SEC rules adopted pursuant to the Sarbanes-Oxley Act of 2002.

     Compensation  Committee.  The  compensation  committee is  responsible  for
compensation  matters  for  the  Company  as well as  administering  our  profit
sharing,  pension and flexible spending plans and overseeing our incentive stock
option plan for key  employees.  The current  members are Mrs. Stai, Dr. Ramsey,
Mssrs.  Canon,  Coalson,  Matthews and  Stephens.  The committee met three times
during 2003.

Director Compensation

     Directors  who  are  our  executive   officers  or  employees   receive  no
compensation  as such for service as members of either the board of directors or
committees  thereof.  Directors who are not our officers receive $2,000 for each
board meeting  attended.  The directors who serve on committees  and who are not
our officers receive $1,000 for each committee meeting attended.

                                      -12-

<PAGE>


Compensation Committee Interlocks and Insider Participation

     No person who served as a member of the compensation  committee was, during
2003,  an  officer  or  employee  of us or any of our  subsidiaries,  or had any
relationship  requiring disclosure in this proxy statement.  However,  committee
member Mr. Coalson  maintained  loans from  subsidiaries  during 2003. The loans
were made in the ordinary course of business,  on substantially  the same terms,
including  interest rates and  collateral,  as those  prevailing at the time for
comparable  transactions  on an arms-length  basis and did not involve more than
the normal risk of collectibility  or present other unfavorable  features to the
subsidiary  bank.  None of our  executive  officers  served  as a member  of the
compensation committee (or other board committee performing equivalent functions
or, in the absence of any such  committee,  the entire  board of  directors)  or
director of another entity,  one of whose executive  officers served as a member
of our board of directors.

                                      -13-


<PAGE>


                      REPORT OF THE COMPENSATION COMMITTEE
                            ON EXECUTIVE COMPENSATION

     During 2003, the executive  compensation  program was  administered  by the
compensation  committee.  The executive  compensation program consists of a base
salary, profit sharing contributions,  and incentive stock options. Mr. Dueser's
compensation program includes a bonus plan which calls for Mr. Dueser to receive
a cash bonus  payable on or before each February 1 that equals 10% of the amount
by which our net  earnings  for the year  exceed a 10%  increase  over the prior
year. Mr. Dueser did not receive a bonus in 2003. Effective January 1, 2001, Mr.
Dueser assumed Chief Executive Officer  responsibilities and Mr. Murphy retained
the title of  Chairman.  In setting Mr.  Dueser's  base salary the  Compensation
Committee considered:

     o    the scope of the Chief Executive Officer's responsibilities;

     o    base salary compared to several compensation surveys;

     o    subjective  evaluation  of Mr.  Dueser's  contribution  to the overall
          success of First Financial Bankshares, Inc.; and

     o    tenure with First Financial Bankshares, Inc..

     The annual base salaries for the  executive  officers and  subsidiary  bank
presidents  and senior  officers  are  adjusted  annually by the  committee  who
considers the following factors when approving annual base salaries:

     o    attainment of planned goals and objectives;

     o    scope of  responsibility  (asset size of subsidiary bank and/or degree
          of influence on our profitability and operations);

     o    tenure with First Financial Bankshares, Inc.;

     o    evaluation input from subsidiary directors; and

     o    relationship  of base salary to the base  salaries of other members of
          the executive officer group.

     Section  162(m) of the Internal  Revenue Code  generally  limits the annual
corporate tax deduction for compensation paid to the chief executive officer and
the  four  other  most  highly   compensated   executive   officers  unless  the
compensation  is  performance-based.  One condition to qualify  compensation  as
performance-based  is to  establish  the  amount  of the  award on an  objective
formula that precludes any discretion.  The compensation  committee continues to
review  the  impact  of  this  tax  provision  on our  incentive  plans  and has
determined  that  Section  162(m) is  currently  inapplicable  because  no named
executive officer receives compensation in excess of $1 million.

                                                  COMPENSATION COMMITTEE


                                                  F. L. Stephens, Chairman
                                                  Joseph E. Canon
                                                  Mac A. Coalson
                                                  Kade L. Matthews
                                                  Jack D. Ramsey, M.D.
                                                  Dian Graves Stai

                                      -14-


<PAGE>


                          REPORT OF THE AUDIT COMMITTEE

     The audit committee  oversees our financial  reporting process on behalf of
your board of  directors.  Management  has the  primary  responsibility  for the
financial  statements and the reporting process including the system of internal
controls. In fulfilling its oversight responsibilities,  the committee, which is
composed of independent  directors in compliance  with Rule 4200 of the National
Association of Securities Dealers' listing standards, reviewed and discussed the
audited financial statements in the Annual Report with management. The committee
also discussed with management the quality,  not just the acceptability,  of the
accounting  principles,  the  reasonableness of significant  judgments,  and the
clarity of disclosures in the financial statements.

     The committee reviewed with Ernst & Young LLP, our independent auditors for
2003, who were  responsible for expressing an opinion on the conformity of those
audited  financial  statements with generally  accepted  accounting  principles,
their judgments as to the quality, not just the acceptability, of our accounting
principles  and such other  matters as are  required  to be  discussed  with the
committee  under  generally  accepted  auditing  standards.   In  addition,  the
committee has discussed with the independent auditors the auditors' independence
from management and the company, including the matters required by the Statement
on Auditing Standards No. 61,  Communication with Audit Committees,  as amended,
and  the  matters  in the  written  disclosures  required  by  the  Independence
Standards Board, and considered the compatibility of non-audit services with the
auditors' independence. The audit committee has received the written disclosures
and the letter from our independent auditors required by Independence  Standards
Board Standard No. 1 concerning the independence of the independent auditors.

     The committee discussed with our independent auditors the overall scope and
plans for their audit. The committee meets with the independent  auditors,  with
and without management  present,  to discuss the results of their  examinations,
their  evaluations  of our  internal  controls,  and the overall  quality of our
financial  reporting.  The committee  held four  meetings  during the year ended
December 31, 2003.

     The committee has relied, without independent verification, on management's
representation  that the financial  statements have been prepared with integrity
and objectivity and in conformity with generally accepted accounting principles.
The  committee's  oversight  does not  provide it with an  independent  basis to
determine that  management  has in fact  maintained  appropriate  accounting and
financial  reporting  principles  or  policies.   Furthermore,  the  committee's
considerations  and discussions with management and the independent  auditors do
not ensure that our company's  financial  statements are presented in accordance
with generally accepted accounting  principles,  that the audit of our company's
financial  statements has been carried out in accordance with generally accepted
auditing  standards or that our company's  independent  accountants  are in fact
independent.

     In reliance on the reviews  and  discussions  referred to above,  the audit
committee  recommended to the executive committee of the board of directors that
the audited  financial  statements be included in the annual report on Form 10-K
for the year ended  December  31,  2003,  for  filing  with the  Securities  and
Exchange Commission.  Acting on behalf of the board of directors,  the executive
committee approved the audit committee's recommendation. Your board of directors
has  adopted a charter for the audit  committee,  a copy of which is filed as an
appendix to this  definitive  proxy  statement  filed  with the  Securities  and
Exchange  Commission.  The members of the committee are  considered  independent
because  we  believe  they  satisfy  the  independence  requirements  for  audit
committee members prescribed by Nasdaq and the SEC.


                                                  AUDIT COMMITTEE


                                                  David Copeland, Chairman
                                                  Raymond A. McDaniel, Jr.
                                                  Bynum Miers
                                                  Derrell E. Johnson
                                                  Johnny E. Trotter

                                      -15-


<PAGE>


PERFORMANCE GRAPH

     The following  performance  graph  compares  cumulative  total  shareholder
return for our common stock, the S&P 500 Index,  and the SNL Banks Index,  which
is a banking  index  prepared by SNL Financial and is comprised of banks with $1
billion to $5 billion in total assets, for a five-year period (December 31, 1998
to December 31, 2003). The performance graph assumes $100 invested in our common
stock at its closing  price on  December  31,  1998,  and in each of the S&P 500
Index and the SNL Banks  Index on the same  date.  The  performance  graph  also
assumes the  reinvestment of all dividends.  The dates on the performance  graph
represent the last trading day of each year indicated.  The amounts noted on the
performance  graph have been  adjusted  to give  effect to all stock  splits and
stock dividends.



                           Corporate Performance Chart

                               [GRAPHIC OMITTED]

<TABLE>
<CAPTION>

                                                                      Year Ended
                                            -------------------------------------------------------------------
Index                                       1998        1999        2000      2001         2002       2003
- ---------------------------------------------------------------------------------------------------------------
<S>                                         <C>        <C>         <C>        <C>         <C>        <C>
First Financial Bankshares, Inc.            100.00      91.04       97.29     121.25      158.76     222.15
S&P 500 *                                   100.00     121.11      110.34      97.32       75.75      97.40
SNL $1B-$5B Bank Index                      100.00      91.91      104.29     126.72      146.28     198.92

</TABLE>

*Source:  CRSP,  Center for  Research in  Security  Prices,  Graduate  School of
Business,  the  University of Chicago  2004.  Used with  permission.  All rights
reserved. crsp.com.

                                      -16-


<PAGE>


         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     As of  February  1, 2004,  we were not aware of any person  (including  any
"group" as that term is used in Section 13(d)(3) of the Securities  Exchange Act
of 1934)  who is the  beneficial  owner  of more  than 5% of our  common  stock.
However,  as of  February  1, 2004,  First  Financial  Trust & Asset  Management
Company,  National Association held of record in various fiduciary capacities an
aggregate of  2,639,390  shares of our common  stock.  Of the total shares held:
First Financial Trust & Asset Management Company,  National Association had sole
power to vote  1,336,669  shares  (8.63%),  shared with others the power to vote
44,351 shares (0.29%) and had no authority to vote 1,258,370 shares (8.13%). All
the shares held by this subsidiary  entity,  which are registered in its name as
fiduciary or in the name of its nominee,  are owned by many different  accounts,
each of which is governed by a separate instrument that sets forth the powers of
the fiduciary with regard to the securities held in such accounts.  The board of
directors  historically  has not attempted to, and does not intend to attempt to
in the future, exercise any power to vote such shares. See "Proposal 1--Election
of Directors--Nominees"  and "--Executive Officers" for information with respect
to the  beneficial  ownership of our common stock by each  director  nominee and
named executive officers as of February 1, 2004. In the aggregate,  all director
nominees and executive  officers as a group (17 individuals)  beneficially owned
1,759,770 shares of our common stock, or 11.37%, as of February 1, 2004.

             SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Exchange Act requires our directors and officers,  and
persons who own more than 10% of our common stock,  to file with the  Securities
and  Exchange  Commission  initial  reports of our common  stock  ownership  and
reports of changes in such  ownership.  A  reporting  person must file a Form 3,
Initial  Statement of Beneficial  Ownership of Securities,  within 10 days after
such person becomes a reporting  person.  A reporting person must file a Form 4,
Statement of Changes of Beneficial Ownership of Securities,  within two business
days after such person's beneficial ownership of securities changes,  except for
certain  changes exempt from the reporting  requirements  of Form 4. Such exempt
changes include stock options  granted under a plan qualifying  pursuant to Rule
16b-3  under the  Exchange  Act. A  reporting  person must file a Form 5, Annual
Statement of Beneficial Ownership of Securities, within 45 days after the end of
the issuer's fiscal year to report any changes in ownership during such year not
reported on a Form 4, including  changes exempt from the reporting  requirements
of Form 4.

     The  Securities  and  Exchange  Commission's  rules  require our  reporting
persons to furnish us with copies of all Section  16(a)  reports that they file.
Based  solely upon a review of the copies of such  reports  furnished  to us, we
believe that the reporting  persons have complied  with all  applicable  Section
16(a)  filing  requirements  for  2003 on a  timely  basis  with  the  following
exceptions:  Mr.  Trotter filed a Form 3 and Form 4 during January 2004 to amend
previously  filed reports and Messrs.  McDaniel,  Matthews,  Ramsey and Stephens
filed Forms 4 during 2003 and 2004 past the required two-business day deadline.

                             INDEPENDENT ACCOUNTANTS

     We retained Ernst & Young LLP to serve as our independent auditors for 2002
and 2003,  effective May 16, 2002. Arthur Andersen LLP served as our independent
auditors for 2001 and 2000.  The decision not to renew the  engagement of Arthur
Andersen was effective  March 25, 2002, and was made by the executive  committee
of our board of  directors,  acting on  behalf  of the  board of  directors  and
following the recommendation of our audit committee.

     During the years ended  December 31, 2001 and 2000,  and the interim period
through  March 25,  2002,  there  were no  disagreements  between  us and Arthur
Andersen  on  any  matter  of  accounting  principles  or  practices,  financial
statement disclosure, or auditing scope or procedure, which disagreements if not
resolved  to Arthur  Andersen's  satisfaction  would  have  caused  them to make
reference to the subject  matter of the  disagreement  in connection  with their
reports.

     None  of  the  reportable  events  described  under  Item  304(a)(1)(v)  of
Regulation  S-K  occurred  within  the two  most  recent  fiscal  years  and the
subsequent  interim  period  through March 15, 2003. The audit reports of Arthur
Andersen on our consolidated  financial  statements for the years ended December
31, 2001 and 2000, did not contain any adverse opinion or disclaimer of opinion,
nor  were  they  qualified  or  modified  as to  uncertainty,  audit  scope,  or
accounting principles.  We provided Arthur Andersen with a copy of the foregoing
disclosure,  and a copy of their  letter  stating  their  agreement  with  these
statements was filed as an exhibit to our Form 8-K dated March 25, 2002.

                                      -17-


<PAGE>


     The  aggregate  fees  billed  for  each of the last two  fiscal  years  for
professional  services  rendered by the principal  accountant  who performed the
audit of our annual financial  statements and review of the quarterly  financial
statements follows:

                                              Year ended December 31,
                                              -----------------------
                                         2003                        2002
                                      --------                    --------
    Audit Fees                        $191,878                    $175,000
    Audit Related Fees                   1,495                       2,395
    Tax Fees                             None                        None
    All Other Fees                       None                        None


Audit-related  fees for 2003  totaling  $1,495 were for research  regarding  the
accounting  treatment of  termination  of contract with a proposed  acquisition.
Audit-related fees for 2002 totaling $2,395 were for research related to pension
accounting and disclosures.

     Our audit committee has adopted a policy that requires  advance approval of
all audit,  audit-related,  tax services,  and other  services  performed by the
independent auditor. The policy provides for pre-approval by the audit committee
of specifically defined audit and non-audit services.  Except as permitted under
Rule 2-01 of SEC Regulation S-X, unless the specific service has been previously
pre-approved  with respect to that year,  the audit  committee  must approve the
permitted  service before the independent  auditor is engaged to perform it. The
audit committee has delegated to its Chairman of the audit  committee  authority
to approve  permitted  services provided that the Chair reports any decisions to
the committee at its next scheduled meeting.

                        INTEREST IN CERTAIN TRANSACTIONS

     As has been true in the past,  some of our officers and directors,  members
of their families,  and other businesses with which they are affiliated,  are or
have been customers of one or more of our subsidiary  banks. As customers,  they
have entered into  transactions  in the  ordinary  course of business  with such
banks, including borrowings,  all of which were on substantially the same terms,
including  interest rates and  collateral,  as those  prevailing at the time for
comparable  transactions on an arms-length basis and did not involve more than a
normal risk of collectibility  or present any other unfavorable  features to the
subsidiary  banks involved.  None of the  transactions  involving our subsidiary
banks and our officers and directors, or other businesses with which they may be
affiliated,   have  been  classified  or  disclosed  as  nonaccrual,  past  due,
restructured or potential problems.

                           INCORPORATION BY REFERENCE

     With  respect  to any  future  filings  with the  Securities  and  Exchange
Commission into which this proxy  statement is  incorporated  by reference,  the
material   under  the  headings   "Executive   Committee   Report  on  Executive
Compensation," "Report of the Audit Committee" and "Performance Graph" shall not
be incorporated into such future filings.

                                      -18-


<PAGE>


                           FORWARD-LOOKING STATEMENTS

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

     o    general economic conditions;

     o    legislative and regulatory actions and reforms;

     o    competition from other financial  institutions  and financial  holding
          companies;

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

     o    changes in the demand for loans;

     o    fluctuations in value of collateral and loan reserves;

     o    inflation, interest rate, market and monetary fluctuations;

     o    changes in consumer spending, borrowing and savings habits;

     o    our ability to attract deposits;

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

     o    acquisitions and integration of acquired businesses.

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

              SHAREHOLDER PROPOSALS FOR NEXT YEAR'S ANNUAL MEETING

     To be considered  for inclusion in our proxy  statement for the 2005 annual
meeting,  shareholder  proposals  must be  received at our  principal  executive
offices no later than December 1, 2004. Under Rule 14a-4(c)(1) of the Securities
Exchange Act of 1934, if any  shareholder  proposal  intended to be presented at
the 2005  annual  meeting  without  inclusion  in our proxy  statement  for this
meeting is received at our principal  executive offices after February 14, 2005,
then a proxy will have the ability to confer discretionary  authority to vote on
this proposal.

                                            By Order of the Board of Directors,



                                            KENNETH T. MURPHY, Chairman

March 25, 2004

                                      -19-


<PAGE>


                                                                       Appendix
                                                                       --------

                             Audit Committee Charter
                        First Financial Bankshares, Inc.


Statement of Policy

The audit  committee  will use its  business  judgment  to  assist  the board of
directors in overseeing:

     o    the  integrity of the  Company's  financial  statements  including the
          financial reporting process and systems of internal controls regarding
          finance, accounting and legal compliance,

     o    the Company's compliance with legal and regulatory requirements,

     o    the independent auditor's qualifications and independence,

     o    and the performance of the Company's internal and external auditors.

In so doing,  the audit  committee  will  maintain  free and open  communication
between the board of directors, the independent auditors, the internal auditors,
and management of the Company.  The audit  committee will have the authority and
necessary  funding to engage  independent  counsel and other outside advisers as
necessary to  discharge  its  responsibilities  and will have full access to all
books, records, facilities and personnel of the Company.

The  function of the audit  committee  is  oversight.  It is not the duty of the
audit  committee to plan or conduct  audits or to determine  that the  Company's
financial  statements  are  complete and  accurate  and are in  accordance  with
generally  accepted  accounting  principles.  Management is responsible  for the
preparation,  presentation,  and integrity of the Company's financial statements
and for the appropriateness of the accounting  principles and reporting policies
that are used by the  Company.  The  independent  auditors are  responsible  for
auditing the  Company's  financial  statements  and for  reviewing the Company's
unaudited interim financial statements.

Organization

The audit  committee  will  consist  of a minimum  of three  members,  which are
members of the board of directors  and are  appointed by the board of directors,
and will be comprised  entirely of directors who are  independent  of management
and the Company as  determined  in  accordance  with  applicable  law and NASDAQ
rules.

All audit committee members should be financially literate (as determined by the
board  in its  business  judgment)  at the  time  of  their  appointment  to the
committee,  and at least  one  member  of the audit  committee  should  meet the
requirements of an "audit committee  financial  expert" as defined in applicable
SEC rules.


Tasks

The audit committee will perform such tasks as may be required by law or
applicable NASDAQ rules including:


     o    Meet at least  four  times per year (but not less than  quarterly)  or
          more often as needed.

     o    Obtain the board of directors' approval of this charter and review and
          reassess this charter as conditions dictate (at least annually).


<PAGE>


     o    Be directly responsible for the appointment,  retention, compensation,
          evaluation and termination of the Company's independent auditors.  The
          independent auditors shall report directly to the audit committee.

     o    Have sole  authority to approve all auditing  and  non-audit  services
          (other  than  those  non-auditing  services  prohibited  by law) to be
          provided by the independent auditors.  Before the independent auditors
          are  engaged  to  perform  any  such  non-audit  services,  the  audit
          committee  should  review the scope of all services to be performed by
          the  independent  auditors that do not relate directly to the audit of
          the Company's financial  statements.  The chairperson of the committee
          may represent the entire committee for purposes of this review so long
          as any such  determination by the chairperson is disclosed to the full
          audit committee as soon as possible after the  determination  is made,
          and in no  event  later  than the  audit  committee's  next  scheduled
          meeting.

     o    If an outside  firm is retained to provide  internal  audit  services,
          review and  concur  with  management's  appointment,  termination,  or
          replacement of the internal audit firm providing those services.

     o    Discuss with the independent and internal  auditors of the Company the
          scope and plans of the  proposed  external  and  internal  audits  and
          timely quarterly reviews and the procedures to be utilized,  including
          adequacy of staffing and the  conclusions  reached as a result of such
          audits or reviews, including any comments or recommendations.

     o    Review with the  independent  auditors,  the  internal  auditors,  and
          financial and accounting  personnel the adequacy and  effectiveness of
          the accounting and financial  controls of the Company,  and elicit any
          recommendations  for the  improvement  of such  internal  controls  or
          particular areas where new or more detailed controls or procedures are
          desirable. This review should include the legal and ethical compliance
          programs of the Company.

     o    Discuss with  management the Company's major financial risk exposures,
          including the Company's risk assessment and risk management policies.

     o    Review with the internal auditors the significant  findings during the
          year and management's response thereto.

     o    Review reports received from regulators and other legal and regulatory
          matters that may have a material effect on the financial statements or
          related Company compliance policies.

     o    Monitor  hiring  policies  for  current  and former  employees  of the
          independent auditors in accordance with applicable laws.

     o    Determine  that the lead audit partner from the  independent  auditors
          serves no longer than five fiscal years in that  capacity and that any
          partner of the independent  auditors other than the lead audit partner
          serves  no  longer  than  seven  years  at the  partner  level  on the
          Company's audit.

     o    Review  the  financial  statements  and  Management's  Discussion  and
          Analysis of Financial Condition and Results of Operations contained in
          the  Company's  Annual  Report  to  Shareholders  on  Form  10-K,  its
          Quarterly  Reports on Form 10-Q prior to the filing or mailing of such
          reports with management and the independent auditors to determine that
          the independent auditors are satisfied with the disclosure and content
          of the financial  statements to be presented.  The  chairperson of the
          committee  may  represent  the entire  committee  for  purposes of the
          review of the Company's Form 10-Q or other earnings guidance,  but all
          members of the committee should  participate in the review of the Form
          10-K.

     o    Discuss with  independent  auditors  any other  matters that are to be
          communicated  to the  committee  as  required  by  applicable  law and
          accounting  pronouncements,  including Statement on Auditing Standards
          No. 61 and amended by  Statement  on Auditing  Standards  No. 90. Also
          review with financial  management and the  independent  auditors their
          judgments  about the quality,  not just  acceptability,  of accounting
          principles and the clarity of the financial  disclosure practices used
          or proposed to be used, and particularly, the degree of aggressiveness
          or  conservatism  of  the  organization's  accounting  principles  and
          underlying   estimates,   and  other  significant  decisions  made  in
          preparing the financial statements.


<PAGE>


     o    Provide  sufficient  opportunity  for the  internal  auditors  and the
          independent  auditors to meet with the members of the audit  committee
          without members of management present. Among the items to be discussed
          in these  meetings are the  independent  auditor's  evaluation  of the
          Company's  financial,  accounting,  and auditing  personnel  providing
          internal audit services, the cooperation that the independent auditors
          received during the course of the audit and  management's  response to
          any questionable accounting issues that may have arisen.

     o    Report the results of the annual audit to the board of  directors.  If
          requested by the board, invite the independent  auditors to attend the
          full board of directors  meeting to assist in reporting the results of
          the   annual   audit  or  to  answer   other   directors'   questions.
          Alternatively, the other directors, particularly the other independent
          directors, may be invited to attend the audit committee meeting during
          which the results of the annual audit are reviewed.

     o    On an annual  basis,  obtain from the  independent  auditors a written
          communication  delineating all their  relationships  and  professional
          services as required by  Independence  Standards Board Standard No. 1,
          Independence  Discussions with Audit Committees.  In addition,  review
          with the  independent  auditors the nature and scope of any  disclosed
          relationships or professional services and take, or recommend that the
          board of directors take,  appropriate  action to ensure the continuing
          independence of the auditors.

     o    At least  annually,  obtain  and  review a report  of the  independent
          auditors' firm  describing  (1) the firm's  internal  quality  control
          procedures, (2) any material issues raised by the most recent internal
          quality-control  review,  or  prior  review,  of the  firm,  or by any
          inquiry or investigation by governmental or professional  authorities,
          within  the last five years  with  respect to one or more  independent
          audits  carried  out by the firm,  and any steps  taken to address any
          such issues,  and (3) with a view towards  assessing  the  independent
          auditor's   independence,   all  relevant  relationships  between  the
          independent auditors and the Company.

     o    Prepare  the  report  of the audit  committee  to be  included  in the
          Company's annual proxy statement as required by SEC regulations.

     o    Submit  the  minutes of all  meetings  of the audit  committee  to, or
          discuss the matters  discussed at each  committee  meeting  with,  the
          board of directors.

     o    Discuss with the  independent  auditors  (1) all  critical  accounting
          policies and  practices to be used,  (2) all  alternate  treatments of
          financial  information within generally accepted accounting principles
          that have been discussed with management,  ramifications of the use of
          these  alternative  disclosures  and  treatments,  and  the  treatment
          preferred  by the  independent  auditors  and (3) the content of other
          material written  communications  between the independent auditors and
          management,  including  but not  limited  to  management  letters  and
          schedules of unadjusted differences.

     o    Review  management's  assertion on its assessment of the effectiveness
          of internal  controls,  as of the end of the most recent  fiscal year,
          and the independent auditors' report on management's assertion.

     o    Establish  and  maintain  appropriate   procedures  for  the  receipt,
          retention and treatment of complaints regarding  accounting,  internal
          accounting   controls  or  auditing  matters  and  the   confidential,
          anonymous  submission  by employees  regarding  accounting or auditing
          matters over which they have concerns or disagreements.

     o    Review the Company's disclosures in the proxy statement for its annual
          meeting of shareholders.

     o    Receive  any report by outside  counsel  regarding  any  evidence of a
          material  violation of  securities  law,  breach of fiduciary  duty or
          similar violation by the Company or its agents.

     o    Review and  approve  all (1)  transactions  between  the  Company  and
          related  parties and (2) waivers of the Company's code of conduct with
          respect to directors and executive officers.


<PAGE>


     o    Annually  evaluate the  effectiveness  of the audit  committee  (which
          evaluation  shall compare the  performance of the audit committee with
          the  requirements  of this  charter),  and report the  results of this
          evaluation to the board of directors.

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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