Exhibit 10.1

                              EMPLOYMENT AGREEMENT

         This EMPLOYMENT AGREEMENT  ("Agreement") is made and entered into as of
this 1st day of February,  1999, by and between  Catskill  Savings Bank, a stock
savings bank  organized  and  operating  under the laws of the United States and
having  its  executive  office  at 341 Main  Street,  Catskill,  New York  12414
(hereinafter  referred to as the "Bank"), and Deborah S. Henderson,  residing at
70 North Street, Catskill, New York 12414.
         WHEREAS,  Ms.  Henderson is currently  serving as Vice President of the
Bank; and
         WHEREAS,  the Board of Directors of the Bank (the "Board")  believes it
is in the best  interests  of the Bank to enter  into  this  Agreement  with Ms.
Henderson in order to assure  continuity of management of the Bank and reinforce
and  encourage the continued  attention and  dedication of Ms.  Henderson to her
assigned duties without distraction; and
         WHEREAS,  the Board has approved and  authorized  the execution of this
Agreement and Ms. Henderson is agreeable thereto.
         NOW,   THEREFORE,   in   consideration  of  the  mutual  covenants  and
obligations  of the  parties  hereto  hereinafter  set  forth,  it is  agreed as
follows:
         1.       Definitions.
         (a) The term "Change in Control"  means:  (1) an event of a nature that
(i)  results  in a  change  in  control  of the  Bank or of  Catskill  Financial
Corporation,  the Delaware  corporation  which owns all of the Bank's stock (the
"Holding Company"), within the meaning of the Home Owners' Loan Act and 12 C. F.
R. Part 574 as in effect on the date  hereof;  or (ii) would be  required  to be
reported in  response to Item 1 of the current  report on Form 8-K, as in effect
on the date hereof,  pursuant to Section 13 or 15(d) of the Securities  Exchange
Act of 1934  (the  "Exchange  Act");  (2)  any  person  (as the  term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the beneficial owner
(as  defined in Rule 13d-3  promulgated  under the  Exchange  Act),  directly or
indirectly of securities of the Bank or the Holding Company  representing 25% or
more of the Bank's or the Holding  Company's then  outstanding  securities;  (3)
individuals who are members of the board of directors of the Bank or the Holding
Company on the date hereof (each the "Incumbent  Board") cease,  for any reason,
to constitute at least a majority  thereof,  provided that any person becoming a
director  subsequent to the date hereof whose election was approved by a vote of
at least  three-quarters  of the directors  comprising the Incumbent  Board,  or
whose nomination for election by the Holding Company's stockholders was approved
by  the  nominating  committee  serving  under  an  Incumbent  Board,  shall  be
considered a member of the Incumbent  Board;  or (4) a  reorganization,  merger,
consolidation, sale of all or substantially all of the assets of the Bank or the
Holding  Company  or a  similar  transaction  in which  the Bank or the  Holding
Company is not the  resulting  entity.  The term  "Change in Control"  shall not
include an acquisition of securities by: (1) the trustee of an employee  benefit
plan of the Bank or the Holding Company;  (2) a corporation  owned,  directly or
indirectly, by the stockholders of the Holding Company in substantially the same
proportions  as their  ownership  of stock of the  Holding  Company;  or (3) Ms.
Henderson,  or any group otherwise  constituting a person in which Ms. Henderson
is a member.
<PAGE>
         (b) The term "Commencement Date" means February 1, 1999.
         (c) The term  "Date of  Termination"  means  the date  upon  which  Ms.
Henderson ceases to serve as Vice President of the Bank.
         (d)  The  term  "Voluntary   Termination"   means  termination  of  the
employment by Ms. Henderson by resignation upon 90 days written notice but shall
not include  resignation  following a Change in Control (see  subparagraph  1(e)
below),  or material breach of this Agreement (see  subparagraph  1(e) below) or
disability.
<PAGE>
         (e)  The  term  "Involuntary  Termination"  means  termination  of  the
employment of Ms.  Henderson by the Bank for any reason other than those reasons
which  constitute   Termination  for  Cause  (see   subparagraph   1(f),(below).
Involuntary  Termination shall also include termination of the employment by Ms.
Henderson as a result of her resignation, upon 30 days written notice, following
a Change in  Control or  material  breach of this  Agreement  such as a material
diminution or  interference  with her duties,  responsibilities  and benefits as
Vice President of the Bank,  including (without limitation) any of the following
actions unless consented to in writing by Ms. Henderson: (1) a material demotion
of Ms.  Henderson;  (2) a material  adverse  change in Ms.  Henderson's  salary,
perquisites, benefits, contingent benefits or vacation, other than as part of an
overall  program applied  uniformly and with equitable  effect to all members of
the senior management of the Bank or the Holding Company.
         (f)  The  term   "Termination  for  Cause"  means  termination  of  the
employment of Ms. Henderson  because of her personal  dishonesty,  incompetence,
willful  misconduct,  breach of a  fiduciary  duty  involving  personal  profit,
intentional  failure to perform  stated  duties,  willful  violation of any law,
rule, or regulation (other than traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of this Agreement.
         2.  Term.  The term of this  Agreement  shall be a period  of two years
commencing on the Commencement Date, subject to earlier  termination as provided
herein. Beginning on the first anniversary of the Commencement Date, and on each
anniversary  thereafter,  the term of this  Agreement  shall be  extended  for a
period of one year in addition to the then-remaining term, provided that (1) the
Bank has not given notice in writing to Ms.  Henderson at least 90 days prior to
such anniversary that the term of this Agreement shall not be extended  further;
and (2) prior to such anniversary,  the Board of the Bank explicitly reviews and
approves the extension.  Reference  herein to the term of this  Agreement  shall
refer to both such initial term and such extended terms.
<PAGE>
         3.       Employment.
         (a) Ms. Henderson is employed as Vice President of the Bank and, except
to the extent  allowed under  subparagraph  3(b),  below,  shall devote her full
business  time and  attention  to the  business  and affairs of the Bank and the
Holding Company and use her best efforts to advance their  interests.  She shall
render such  administrative and management services under the supervision of the
President  of the Bank as are  customarily  performed  by  persons  situated  in
similar executive  capacities,  and shall have such other powers and duties, not
inconsistent  with her title and office, as the Board may prescribe from time to
time.
         (b) Ms.  Henderson  may  engage in  personal  business  and  investment
activities  for her own account and serve as a member of the board of  directors
of such business, community and charitable organizations as she may disclose, in
advance,  to the Board from time to time so long as such activities and services
do not  materially  interfere  with the  performance  of her  duties  under this
Agreement  or involve  entities  which  either  compete  with the Bank or may be
reasonably  expected to negatively  impact on the Bank's standing and reputation
in the community it serves.
         4.       Compensation.
         (a)  Salary.  The Bank agrees to pay Ms.  Henderson  during the term of
this Agreement,  not less frequently than monthly, the salary established by the
Board,  which shall be at least equal to Ms.  Henderson's salary in effect as of
the Commencement Date. The amount of Ms. Henderson's salary shall be reviewed by
the Board, at least annually  beginning not later than the first  anniversary of
the Commencement  Date.  Adjustments in salary or other  compensation  shall not
limit or reduce  any other  obligation  of the Bank under  this  Agreement.  Ms.
Henderson's salary in effect from time to time during the term of this Agreement
shall not thereafter be reduced.  At each anniversary of the  commencement  date
following a Change in Control,  Ms.  Henderson's  salary  shall be  increased at
least by  multiplying  it by the  greater  of: (1) the  quotient of (i) the U.S.
Department   of  Labor   Consumer   Price   Index   for  all   Urban   Consumers
(N.Y.-Northeastern  N.J.) for January of the then current  calendar year divided
by (ii)  the U.S.  Department  of  Labor  Consumer  Price  Index  for all  Urban
Consumers  (N.Y.-  Northeastern  N.J.) for January of the immediately  preceding
calendar  year;  and (2) the quotient of (i) the average  annual rate of salary,
determined as of the first  business day of such calendar  year, of the officers
of the Bank (other than Ms.  Henderson) who are assistant vice president or more
senior officers,  divided by (ii) the average annual rate of salary,  determined
as of the first business day of the immediately  preceding calendar year, of the
officers  of the  Bank  (other  than  Ms.  Henderson)  who  are  assistant  vice
presidents or more senior officers.
<PAGE>
         (b)  Discretionary   Bonuses.   Ms.  Henderson  shall  be  entitled  to
participate in an equitable manner with all other executive officers of the Bank
in such discretionary bonuses as are authorized and declared by the Board to its
executive employees.  No other compensation provided for in this Agreement shall
be deemed to substitute for Ms. Henderson's right to participate in such bonuses
when and as declared by the Board.
         (c)  Expenses.  Ms.  Henderson  shall be  entitled  to  receive  prompt
reimbursement for all reasonable expenses incurred by her in performing services
under this Agreement in accordance  with the policies and procedures  applicable
to executive officers of the Bank,  provided that she accounts for such expenses
as required under such policies and procedures.
         5.       Benefits.
         (a)  Participation  in  Retirement  and  Employee  Benefit  Plans.  Ms.
Henderson  shall be entitled to  participate  in all plans  relating to pension,
thrift, profit-sharing,  group life and disability insurance, medical and dental
coverage,  education, cash bonuses, and other retirement or employee benefits or
combinations thereof, in which the Bank's executive officers participate.
         (b) Fringe Benefits. Ms. Henderson shall be eligible to participate in,
and receive  benefits  under,  any fringe  benefit plans which are or may become
applicable to the Bank's executive officers.
         6.  Vacations;  Leave.  Ms.  Henderson shall be entitled to annual paid
vacation in accordance with the policies  established by the Board for executive
officers and to voluntary  leaves of absence,  with or without pay, from time to
time,  at such times and upon such  conditions as the Board may determine in its
discretion.
<PAGE>
         7.       Termination of Employment.
         (a) Involuntary  Termination.  The Board may terminate Ms.  Henderson's
employment at any time. In the event of  Involuntary  Termination  other than in
connection with a Change in Control,  the Bank shall,  during  remaining term of
this  Agreement,  (1) pay to Ms.  Henderson,  her  salary  at the rate in effect
immediately prior to the Date of Termination, payable in such manner and at such
times as such salary would have been payable  under  Section 4 if Ms.  Henderson
had  continued  to be  employed  by the  Bank,  (2)  provide  to  Ms.  Henderson
substantially  the same life,  health and disability  insurance  benefits as the
Bank  maintained  for its executive  officers  immediately  prior to the Date of
Termination reduced by the amount of any such insurance benefits provided to Ms.
Henderson by a subsequent employer,  and (3) provide to Ms. Henderson such other
benefits,  if any,  to which she and her family and  dependents  would have been
entitled as a former  officer or the family or  dependents  of a former  officer
under the employee benefit plans and programs  maintained for the benefit of the
Bank's  officers  in  accordance  with the terms of such plans and  programs  in
effect immediately prior to the Date of Termination.

         (b) Termination  for Cause. In the event of Termination for Cause,  the
Bank shall (1) pay Ms.  Henderson  her salary and  benefits  through the Date of
Termination,  (2) pay her for  unused  vacation  days,  and (3) have no  further
obligations to her under this Agreement.
         (c)  Voluntary   Termination.   Ms.   Henderson's   employment  may  be
voluntarily  terminated by her at any time by resignation.  In the event of such
Voluntary  Termination,  the Bank shall be obligated to (1) pay to Ms. Henderson
her salary and benefits through the Date of Termination,  (2) pay her for unused
vacation days, and (3) have no further obligations to her under this Agreement.
         (d)  Change in  Control.  In the event of  Involuntary  Termination  in
connection  with or within 12 months after a Change in Control,  the Bank shall,
subject to  paragraph 8 of this  Agreement,  (1) pay to Ms.  Henderson an amount
equal to 200% of her "base  amount" as defined in 26 U.S.C.  Section  28OG which
payment  shall be made in three  equal  installments,  the first  within 10 days
after the Date of  Termination,  the second on the fifth business day of January
of the next succeeding  calendar year and the third on the fifth business day of
January of the second  succeeding  calendar year,  (2) provide to Ms.  Henderson
during the remaining term of this Agreement  substantially the same life, health
and  disability  insurance  benefits as the Bank  maintained  for its  executive
officers  immediately  prior to the Date of Termination,  and (3) provide to Ms.
Henderson  such  other  benefits,  if any,  to  which  she and  her  family  and
dependents  would  have  been  entitled  as a former  officer  or the  family or
dependents  of a former  officer  under the employee  benefit plans and programs
maintained for the benefit of the Bank's  officers in accordance  with the terms
of  such  plans  and  programs  in  effect  immediately  prior  to the  Date  of
Termination.
<PAGE>
         (e)  Death;  Disability.  In the  event of the  death of Ms.  Henderson
during the term of this  Agreement,  within 60 days  following  such death,  her
estate,  or such  person(s)  as she may have  designated  in  writing,  shall be
entitled  to  receive  from  the  Bank a death  benefit,  payable  through  life
insurance or otherwise, which is equal to one times Ms. Henderson's then current
salary.  If Ms. Henderson becomes disabled as defined in the Bank's then current
disability  plan,  if  any,  or if she is  otherwise  unable  to  serve  as Vice
President,  this Agreement shall continue in full force and effect,  except that
the salary paid to Ms.  Henderson  shall be reduced by any disability  insurance
payments  made to her on policies  of  insurance  maintained  by the Bank at its
expense.  In addition,  in the event of the death or disability of Ms. Henderson
during the term of this Agreement,  Ms.  Henderson and her family and dependents
(in the event of  disability)  and her  family and  dependents  (in the event of
death) shall be provided  with such benefits as they would have been entitled to
receive  as a former  officer or the family or  dependents  of a former  officer
under the employee benefit plans and programs  maintained for the benefit of the
Bank's  officers  in  accordance  with the terms of such plans and  programs  in
effect immediately prior to the death or disability.

         (f) Temporary Suspension or Prohibition.  If Ms. Henderson is suspended
and/or  temporarily  prohibited from  participating in the conduct of the Bank's
affairs by a notice  served  under  Section  8(e)(3)  or (g)(1) of the FDIA,  12
U.S.C.  Section  1818(e)(3)  and  (g)(1),  the  Bank's  obligations  under  this
Agreement, other than those which have vested, shall be suspended as of the date
of service,  unless  stayed by  appropriate  proceedings.  If the charges in the
notice are dismissed,  the Bank may in its discretion (1) pay Ms.  Henderson all
or part of the compensation  withheld while its obligations under this Agreement
were  suspended  and (2)  reinstate  in whole or in part any of its  obligations
which were suspended.
         (g) Permanent  Suspension or Prohibition.  If Ms.  Henderson is removed
and/or  permanently  prohibited from  participating in the conduct of the Bank's
affairs by an order  issued  under  Section  8(e)(4)  or (g)(1) of the FDIA,  12
U.S.C.  Section  1818(e)(4) and (g)(1),  all  obligations of the Bank under this
Agreement  shall  terminate as of the  effective  date of the order,  but vested
rights of the contracting parties shall not be affected.
         (h)  Default  of the Bank.  If the Bank is in  default  (as  defined in
Section  3(x)(1) of the  FDIA),  all  obligations  under  this  Agreement  shall
terminate  as of the date of default,  but this  provision  shall not affect any
vested rights of the contracting parties.
         (i)  Termination by Regulators.  All  obligations  under this Agreement
shall be terminated,  except to the extent  determined that continuation of this
Agreement is necessary for the  continued  operation of the Bank by the Director
of the Office of Thrift Supervision (the "Director") or his or her designee,  at
the time: (1) the Federal Deposit Insurance Corporation enters into an agreement
to provide assistance to or on behalf of the Bank under the authority  contained
in  Section  13(c)  of the  FDIA;  or (2) the  Director  or his or her  designee
approves a supervisory  merger to resolve  problems  related to operation of the
Bank; or (3) the Director or his or her designee determines the Bank to be in an
unsafe or unsound condition. Any rights of the parties that have already vested,
however, shall not be affected by any such action.
<PAGE>
         8. Certain Reduction of Payments by the Bank. Notwithstanding any other
provision of this Agreement, if payments under this Agreement, together with any
other payments  received or to be received by Ms. Henderson in connection with a
Change in Control  would  cause any amount to be  nondeductible  by the Bank for
federal income tax purposes  pursuant to 26 U.S.C.  Section 28OG,  then benefits
under  this  Agreement  shall be  reduced  (not  less than  zero) to the  extent
necessary so as to maximize payments to Ms. Henderson without causing any amount
to  become  nondeductible  by  the  Bank.  Ms.  Henderson  shall  determine  the
allocation of such reduction among payments to her.

         9. No Mitigation.  Ms.  Henderson shall not be required to mitigate the
amount of any salary or other payment or benefit  provided for in this Agreement
by seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for in this Agreement be reduced by any compensation  earned by
Ms. Henderson as the result of employment by another employer unless  explicitly
stated  herein,  by  retirement  benefits  after  the  Date  of  Termination  or
otherwise.
         10.  Attorneys  Fees.  In the  event  the Bank  exercises  its right of
Termination for Cause, but it is determined by a court of competent jurisdiction
or by an  arbitrator  pursuant to Paragraph 18 that cause did not exist for such
termination,  or if it is determined by a court or arbitrator  that the Bank has
failed  to meet any of its  obligations  or  abide  by any of the  terms of this
Agreement,  Ms. Henderson shall be entitled to reimbursement  for all reasonable
costs,  including  attorneys' fees,  incurred in challenging such termination or
enforcing such obligations or terms. Such reimbursement  shall be in addition to
all rights to which Ms. Henderson is otherwise entitled under this Agreement.
         11.      No Assignments.
         (a) This  Agreement  is  personal to each of the  parties  hereto,  and
neither party may assign or delegate any of its rights or obligations  hereunder
without  first  obtaining  the  written  consent of the other  party;  provided,
however,  that the Bank shall require any successor or assign (whether direct or
indirect,   by  purchase,   merger,   consolidation  or  otherwise)  to  all  or
substantially  all of the business  and/or  assets of the Bank, by an assumption
agreement in form and  substance  satisfactory  to Ms.  Henderson,  to expressly
assume and agree to perform  this  Agreement  in the same manner and to the same
extent that the Bank would be required  to perform it if no such  succession  or
assignment  had taken  place.  Failure of the Bank to obtain such an  assumption
agreement prior to the  effectiveness of any such succession or assignment shall
be a breach of this  Agreement and shall entitle Ms.  Henderson to  compensation
from the  Bank in the same  amount  and on the  same  terms as the  compensation
pursuant to Paragraph 7(d) hereof.  For purposes of implementing  the provisions
of this Paragraph 11(a), the date on which any such succession becomes effective
shall be deemed the Date of Termination.
         (b) This  Agreement  and all rights of Ms.  Henderson  hereunder  shall
inure  to  the  benefit  of  and  be  enforceable  by  her  personal  and  legal
representatives,  executors,  administrators,  successors,  heirs, distributees,
devisees and legatees. If Ms. Henderson should die while any amounts would still
be payable to her  hereunder  if she had  continued to live,  all such  amounts,
unless otherwise provided herein,  shall be paid in accordance with the terms of
this Agreement to her devisee, legatee or other designee or if there is no such
designee, to her estate.
<PAGE>
         12. Notice.  For the purposes of this Agreement,  notices and all other
communications  provided for in the  Agreement  shall be in writing and shall be
deemed to have been duly given when  personally  delivered  or sent by certified
mail, return receipt requested, postage prepaid, if to the Bank at its executive
office,  to the attention of the Board with a copy to the Secretary of the Bank,
or, if to Ms. Henderson,  to her home at the address stated above, unless notice
of a change of address has been given pursuant hereto.
         13. Entire  Agreement;  Amendments.  This Agreement:  i) sets forth the
entire  understanding  of the parties  with  respect to its  subject  matter and
supersedes  all prior oral and written  agreements  between them,  including the
"Change in Control Severance  Agreement"  entered into on April 1, 1996; and ii)
may be amended only by a writing signed by both parties.
         14.  Headings.  The headings used in this Agreement are included solely
for  convenience  and shall  not  affect,  or be used in  connection  with,  the
interpretation of this Agreement.
         15.  Counterparts.  This  Agreement  may be  executed  in any number of
counterparts,  each of  which  will be  deemed  an  original,  but all of  which
together will constitute one and the same instrument.
         16.  Severability.  The  provisions of this  Agreement  shall be deemed
severable and the  invalidity  or  unenforceability  of any provision  shall not
affect the validity or enforceability of the other provisions hereof.
         17. Waiver.  Failure,  by either party, to insist on strict  compliance
with any of the terms or conditions  hereof shall not be deemed a waiver of such
term or condition.
         18.  Governing Law. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
New York.
         19.  Arbitration.  Any  dispute  or  controversy  arising  under  or in
connection  with this Agreement  shall be settled  exclusively by arbitration in
Albany,  New York in  accordance  with the  rules  of the  American  Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction.
<PAGE>
         IN WITNESS WHEREOF,  the parties have executed this Agreement as of the
day and year first above written.

Attest:                                                CATSKILL SAVINGS BANK



 /s/ David L. Guldenstern                           By: /s/ Allan D. Oren
 ------------------------                           ---------------------
 SECRETARY                                          DIRECTOR


WITNESS:



 /s/ Wilbur J. Cross                                 /s/ Deborah S. Henderson
 -------------------                                 ------------------------
 PRESIDENT                                              DEBORAH S. HENDERSON