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AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER, dated as of October 3, 2006 (this “ Agreement ”), is by and between Treaty Oak Bancorp, Inc., a Texas corporation (“ Bancorp ”), and Treaty Oak Holdings, Inc., a Texas corporation (the “ Company ” and, together with Bancorp, the “ Parties ”).

WHEREAS, this Agreement provides for the acquisition of the Company by Bancorp by virtue of the merger of the Company with and into Bancorp (the “ Merger ”);

WHEREAS, as a result of the Merger, all of the issued and outstanding shares of the Company’s Common Stock, par value of $0.01 per share (the “ Company Common Stock ”), and the Company’s Preferred Stock, par value $10.00 per share (the “ Company Preferred Stock ”), shall be converted into and exchanged for shares of Bancorp’s Common Stock, par value $0.01 per share (the “ Shares ”), in the manner provided in this Agreement;

WHEREAS, the Board of Directors of Bancorp and the Board of Directors of the Company have each approved this Agreement and the proposed transactions contemplated hereby and have authorized the execution hereof, and the Board of Directors of Bancorp and the Board of Directors of the Company have adopted a resolution recommending that the plan of merger set forth in this Agreement be approved by the shareholders of Bancorp and the Company; and

WHEREAS, the parties intend, by executing this Agreement, to adopt a plan of reorganization within the meaning of Section 368 of the Code.

NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth in this Agreement and intending to be legally bound hereby, the Parties hereby agree as follows:

ARTICLE I
THE MERGER

Section 1.01           The Merger .  Upon the terms and subject to satisfaction or waiver of the conditions set forth in this Agreement, the Company shall be merged with and into Bancorp at the Effective Time (as defined below), in accordance with the provisions of Part Five of the Texas Business Corporation Act (the “ TBCA ”), and the separate corporate existence of the Company shall cease.  Bancorp shall be the surviving corporation in the Merger (sometimes referred to as the “ Surviving Corporation ”) and shall continue its corporate existence under the Laws of the State of Texas.

Section 1.02           Effective Time .  Subject to the provisions of this Agreement, at the Closing the Company and Bancorp shall duly execute and file articles of merger (the “ Articles of Merger ”) with the Secretary of State of the State of Texas under Article 5.04 of the TBCA.  The Merger will become effective when the Articles of Merger are filed in the office of the Secretary of State of the State of Texas and a certificate of merger is issued by the office of the Secretary

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of State of the State of Texas pursuant to Article 5.05 of the TBCA, or at such later date or time as Bancorp and the Company shall agree and specify in the Articles of Merger in accordance with Article 10.03 of the TBCA (the time the Merger becomes effective, the “ Effective Time ”).

Section 1.03           Effects of the Merger .  The Merger shall have the effects provided by this Agreement and as set forth in the TBCA and other applicable Law.

Section 1.04           Effect on Capital Stock .  At the Effective Time, by virtue of the Merger and without any further action on the part of the Parties or any holder of Company Common Stock or Company Preferred Stock:

(a)           Each share of Company Common Stock issued and outstanding immediately prior to the Effective Time (other than Dissenting Shares and Treasury Shares) shall be converted into the right to receive 0.8121 Shares, and each share of Company Preferred Stock issued and outstanding immediately prior to the Effective Time (other than Dissenting Shares or Treasury Shares) shall be converted into the right to receive 1.2034 Shares (all of such Shares issued to the holders of the Company Common Stock and the Company Preferred Stock are sometimes referred to herein as the “ Merger Consideration ”).  At the Effective Time, all shares of Company Common Stock and Company Preferred Stock (collectively, the “ Company Capital Stock ”) shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate that immediately prior to the Effective Time represented any shares of Company Capital Stock (a “ Certificate ”) shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration for each share of Company Capital Stock represented by the Certificate or, in the case of Dissenting Shares, the rights set forth in Section 1.05.

(b)           Any shares of Company Capital Stock held directly or indirectly by the Company (collectively, the “ Treasury Shares ”) shall be cancelled and retired at the Effective Time, and no consideration shall be issued in exchange therefor.

(c)           At the Effective Time, the stock transfer books of the Company shall be closed, and no transfer of Company Capital Stock theretofore outstanding shall thereafter be made.

(d)           If, between the date of this Agreement and the Effective Time, the outstanding shares of Company Capital Stock shall have been increased, decreased, changed into or exchanged for a different number or kind of shares or securities as a result of a reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or otherwise, an appropriate and proportionate adjustment shall be made to the Merger Consideration.

Section 1.05           Dissenting Shares .  Notwithstanding any other provision contained in this Agreement, shares of Company Capital Stock that are issued and outstanding as of the Effective Time and that are held by a shareholder who has not voted such shares in favor of the Merger and who has otherwise taken all of the steps required by Article 5.12 of the TBCA to properly exercise and perfect such shareholder’s dissenter’s rights (any such shares being referred to herein as “ Dissenting Shares ”) shall be deemed to have ceased to represent any interest in the Surviving Corporation as of the Effective Time and shall be entitled to those rights and remedies

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set forth in Articles 5.11, 5.12 and 5.13 of the TBCA; provided , however , that in the event that a shareholder of the Company fails to perfect, withdraws or otherwise loses any such right or remedy granted by the TBCA, the shares of Company Capital Stock held by such shareholder shall be converted into and represent only the right to receive the Merger Consideration specified in this Agreement.  The Company shall give Bancorp (a) prompt notice of any notice or demand for appraisal or payment for shares of Company Capital Stock received by the Company, and (b) the opportunity to participate in and direct all negotiations and proceedings with respect to any such demands or notices.  The Company shall not, without the prior written consent of Bancorp, make any payment with respect to, or settle, offer to settle or otherwise negotiate any such demands.

Section 1.06           Exchange Procedures .

(a)           All Certificates shall be delivered to Bancorp at the Closing.  Upon surrender of a Certificate to Bancorp for exchange, Bancorp will instruct its transfer agent to issue to such holder certificates evidencing the applicable Merger Consideration.  The holder of such Certificate shall be entitled to receive in exchange therefor a certificate representing the number of Shares that such holder has the right to receive pursuant to the terms hereof, and the Certificate so surrendered shall be cancelled.  Until surrendered as contemplated by this Section 1.06, each Certificate shall be deemed, from and after the Effective Time, to represent only the right to receive upon such surrender a certificate representing Shares as contemplated by this Section 1.06.

(b)           If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if reasonably required by Bancorp, the posting by such Person of a bond, in such reasonable amount as Bancorp may direct, as indemnity against any claim that may be made against either of them with respect to such Certificate, Bancorp shall cause the transfer agent to shall issue in exchange for such lost, stolen or destroyed Certificate the Merger Consideration to which the holder thereof is entitled.

(c)           Notwithstanding the foregoing, neither Party shall be liable to any former holder of Company Capital Stock for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar Laws.

(d)           Bancorp shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of shares of Company Capital Stock such amounts as Bancorp is required to deduct and withhold with respect to the making of such payment under the Code.  To the extent that amounts are so withheld by Bancorp, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the shares of Company Capital Stock in respect of which such deduction and withholding was made by Bancorp.

Section 1.07           Stock Options .  At the Effective Time, each outstanding option to purchase shares of Company Common Stock (each, a “ Company Option ”) whether vested or unvested, shall be, in connection with the Merger, assumed by Bancorp.  Each Company Option so assumed by Bancorp under this Agreement shall continue to have, and be subject to, the same

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terms and conditions set forth in the respective option agreements immediately prior to the Effective Time, except that (i) such Company Option shall be exercisable only for that number of whole shares of Bancorp Common Stock equal to the product of the number of shares of Company Common Stock that were issuable upon exercise of such Company Option immediately prior to the Effective Time multiplied by 0.8121, rounded down to the nearest whole number of shares of Bancorp Common Stock, and (ii) the per share exercise price for the shares of Bancorp Common Stock issuable upon exercise of such assumed Company Option shall be equal to the quotient determined by dividing the exercise price per share of Company Common Stock at which such Company Option was exercisable immediately prior to the Effective Time by 0.8121, rounded up to the nearest whole cent.  As of the date of this Agreement, there are outstanding Company Options to acquire 40,000 shares of Company Common Stock held by four (4) individuals.

ARTICLE II
THE CLOSING AND THE CLOSING DATE

Section 2.01           Closing; Closing Date .  On the terms and subject to the conditions set forth in this Agreement, a closing (the “ Closing ”) shall take place at the offices of Jenkens & Gilchrist, A Professional Corporation, 401 Congress Ave., Suite 2500, Austin, Texas  78701 at 10:00 a.m. on a date designated by Bancorp, which shall be no later than the fifth (5 th ) Business Day after the satisfaction or waiver of the last to be satisfied or waived of the conditions set forth in Article VII, Article VIII and Article IX; provided , however , that if on such date the conditions set forth in Article VII, Article VIII and Article IX have not been satisfied or waived (subject to applicable Law) (other than those conditions that by their nature are to be satisfied or waived at the Closing, but in all cases subject to satisfaction thereof), the Closing shall take place on the second (2 nd ) Business Day immediately following the date on which such conditions have been so satisfied or waived.  The date on which the Closing actually occurs is referred to herein as the “ Closing Date .”  The Effective Time of the Merger shall be determined in accordance with Section 1.02.

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company hereby represents and warrants to Bancorp as follows:

Section 3.01           Organization and Qualification of the Company and its Subsidiaries .  The Company is a corporation duly incorporated, validly existing and in good standing under the Laws of the State of Texas.  Each Subsidiary of the Company is duly incorporated, validly existing and in good standing under the Laws of the State of Texas.  Each of the Company and its Subsidiaries is duly qualified or licensed to do business, and is in good standing, in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification, licensing or good standing necessary, except for such failures to be so qualified, licensed or in good standing that would not, individually or in the aggregate, have a Company Material Adverse Effect.

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Section 3.02           Authority; Binding Agreement .

(a)           The Company has all necessary corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated by this Agreement.  The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly and validly authorized by all necessary action of the Company (other than (i) the approval of this Agreement by the affirmative vote of the holders of two-thirds of the outstanding shares of Company Common Stock (voting as a class) entitled to vote thereon and (ii) the approval of two-thirds of the outstanding shares of Company Preferred Stock (voting as a class) entitled to vote thereon).  This Agreement has been duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery hereof by Bancorp, constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar Laws of general applicability relating to or affecting creditors’ rights and to general equitable principles (regardless of whether such enforceability is considered in equity or at law).

(b)           By resolutions duly adopted at a meeting of the Board of Directors of the Company duly called and held on July 25, 2006, by the affirmative vote of the Board of Directors of the Company required to vote pursuant to the Articles of Incorporation of the Company and the applicable provisions of the TBCA, the Board of Directors of the Company has duly (i) adopted a resolution recommending that this Agreement be approved by the shareholders of the Company, and (ii) approved and adopted this Agreement (the “ Company Board Approval ”).  The Board of Directors of the Company has directed that this Agreement be submitted to the shareholders of the Company for their approval via written consent.  The Company Board Approval constitutes approval of this Agreement by the Board of Directors of the Company for all purposes under and in accordance with the TBCA.

ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BANCORP

Bancorp hereby represents and warrants to the Company as follows:

Section 4.01           Organization and Qualification of Bancorp .  Bancorp is a bank duly formed, validly existing and in good standing under the Laws of the State of Texas, and is a bank holding company registered under the BHCA.  Bancorp shall have the requisite power and authority and all necessary governmental approvals to own, lease and operate its respective properties and to carry on its business as it is now or then being conducted, respectively.  Bancorp is duly qualified or licensed to do business, and in good standing, in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification, licensing or good standing necessary, except for such failures to be so qualified, licensed or in good standing that would not, individually or in the aggregate, have a Bancorp Material Adverse Effect.

Section 4.02           Authority; Binding Agreement .  Bancorp has all necessary power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to

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consummate the transactions contemplated by this Agreement.  The execution and delivery of this Agreement by Bancorp and the consummation by Bancorp of the transactions contemplated hereby have been duly and validly authorized by all necessary action of Bancorp.  This Agreement has been duly and validly executed and delivered by Bancorp and, assuming the due authorization, execution and delivery hereof by the Company, constitutes a legal, valid and binding obligation of Bancorp, enforceable against Bancorp in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar Laws of general applicability relating to or affecting creditors’ rights and to general equitable principles (regardless of whether such enforceability is considered in equity or at law).

ARTICLE V
MUTUAL COVENANTS OF THE PARTIES

Section 5.01           Commercially Reasonable Efforts .  Subject to the terms and conditions of this Agreement, each of Bancorp and the Company agrees to use its commercially reasonable efforts in good faith to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or desirable, or advisable under applicable Laws, so as to enable the Parties to consummate, as soon as practicable, the Merger and the other transactions contemplated hereby that are required to be performed prior to or at the Effective Time, including the satisfaction of the conditions set forth in this Agreement, and the Parties shall cooperate fully with each other to that end.

Section 5.02           Appropriate Actions; Consents; Filings .

(a)           Bancorp and the Company shall use their commercially reasonable efforts to (i) take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable under applicable Law or otherwise in order to consummate and make effective the transactions contemplated by this Agreement that are intended to be consummated prior to the Effective Time as promptly as practicable hereafter; (ii) obtain from any Governmental Entity any Government Approvals required to be obtained or made by the Company or Bancorp or any of their respective Subsidiaries, or to avoid or cause to be withdrawn or terminated, without prejudice to the Parties, any action or proceeding by any Governmental Entity, in connection with the authorization, execution and delivery of this Agreement and the consummation of the Merger as contemplated hereby; and (iii) make all necessary filings, and thereafter make any other required submissions, with respect to this Agreement and the Merger required (A) under the BHCA, (B) under the Exchange Act, (C) under the Texas Finance Code (the “ Texas Finance Code ”), (D) under any other applicable federal or state securities Laws, and (E) under any other applicable Law; provided that the Company and Bancorp shall cooperate with each other in connection with the preparation and making of all such filings, including, if requested and subject to applicable Law, by providing copies of all such documents to the non-filing party and its advisors prior to filing and, if requested, to accept all reasonable additions, deletions or changes suggested in connection therewith provided that the reviewing party agrees to act reasonably and as promptly as practicable.  The Company and Bancorp shall furnish to each other all information reasonably required for any application or other filing under applicable Law in connection with the transactions contemplated by this Agreement.  Notwithstanding the foregoing, nothing contained herein shall be deemed to require Bancorp to take any action, or commit to take any action, or

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