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                                                                    Exhibit 10.4

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                   EXECUTIVE SEVERANCE COMPENSATION AGREEMENT

      This AGREEMENT (the "Agreement") is made and entered into effective as of
the day of April 12,1999, by and between Eurobank, a Puerto Rico banking
corporation, with main offices in San Juan, Puerto Rico (the "Bank"), and YADIRA
MERCADO, of legal age, married, a key employee and officer of the Bank, and
resident of San Juan, Puerto Rico (the "Executive").

                                   WITNESSETH:

      WHEREAS, Bank considers the establishment and maintenance of a sound and
vital management to be essential to protecting and enhancing the best interests
of Bank and its stockholders;

      WHEREAS, Bank recognizes that the possibility of a Change in Control (as
hereinafter defined) may exist, and that such possibility, and the uncertainty
and questions which it may raise among management, may result in the departure
or distraction of management personnel to the detriment of Bank and its
stockholders;

      WHEREAS, Executive is willing to continue to serve Bank but desires
assurance that in the event of any Change in Control of Bank, he/she will
continue to have the responsibility and stature he/she has earned within the
Bank, or in the alternative, if terminated that he/or she be adequately
compensated as herein provided;

      WHEREAS, the Bank and the Executive now desire to enter into this
Agreement to establish the terms and conditions upon which such payments will be
made.

      NOW, THEREFORE, in consideration of the mutual undertakings set forth in
this Agreement, and for other good and valuable consideration, the receipt and

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sufficiency of which are hereby acknowledged, the Bank and the Executive agree
as follows:

                                   ARTICLE ONE
                                   DEFINITIONS

1.    "Beneficiary" shall mean the person(s) described in Article Four of this
      Agreement.

2.    "Board" shall mean the Board of Directors of the Bank.

3.    "Change in Control" shall mean and shall be deemed to have occurred for
      purposes of this Agreement if and when:

      (i)   any entity, person or group of persons acting in concert becomes
            beneficial owner (within the meaning of Section 13(d) of the
            Securities and Exchange Act of 1934), directly or indirectly, of
            securities of the Bank representing more than twenty-five percent
            (25%) of the combined voting power of the Bank or any successor; or

      (ii)  the effective date of a merger or consolidation of the Bank with one
            or more other corporations or banks as a result of which the holders
            of the outstanding voting stock of the Bank immediately prior to the
            merger hold less than sixty-six percent (66%) of the combined voting
            power of the surviving or resulting corporation or bank;

      (iii) the effective date of a transfer of all or substantially all of the
            property of the Bank other than to an entity of which the Bank owns
            at least eighty percent (80%) of the combined voting power; or

      (iv)  as a result, or in connection with, any cash, render or exchange
            after merger, contested election, or other business combination, or
            any combination of the foregoing, the services of the Executive are
            no longer required in his present capacity.

4.    "Compensation" shall mean the Executive's base annual salary (which is
      intended to be total base salary without proration for actual months
      worked) (herein "Base Compensation") plus the highest performance or
      incentive based remuneration (herein the "Performance Compensation"), as
      reported by the Bank on 499-R

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      2/W-2 Form (or its equivalent) in any of the four fiscal years prior to
      the termination of employment.

6.    "Constructive Termination" shall mean that the Executive resigns from his
      position(s) with the Bank as a result of any of the following:

      (i)   Without his express written consent, the detrimental assignment to
            the Executive of any duties inconsistent with his positions, duties,
            and responsibilities with the Bank as in effect immediately before a
            Change in Control;

      (ii)  A reduction of the Executive's overall Compensation without the
            prior written consent of the Executive, which is not remedied within
            thirty (30) calendar days after receipt by the Bank of written
            notice from the Executive of such reduction;

      (iii) A determination by the Executive made in good faith that as a result
            of a Change in Control, he has been rendered unable to carry out, or
            has been substantially hindered in the performance of, any of the
            authorities, powers, functions, responsibilities or duties attached
            to his position with Bank's successor, which situation is not
            remedied within thirty (30) calendar days after receipt by the Bank
            of written notice from the Executive of such determination;

      (iv)  Failure by the Bank to require and/or obtain in writing from any
            successor (whether direct or indirect, by purchase, merger,
            consolidation or otherwise) to all or substantially all of the
            business and/or assets of the Bank, an agreement in form and
            substance satisfactory to the Executive, expressly to 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 had taken place:

      (v)   Executive's "Disability" as such term is defined in the Bank's long
            term disability plan, or if the Bank has no long term disability
            plan in effect at the time of the Executive's disability, shall have
            the meaning provided in the Internal Revenue Code, of the United
            States (the "Code"), Section 22(e)(3). (Provided, however, if
            Executive is covered by Disability Insurance at the time of such
            disability, he shall then be entitled to such

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            insurance coverage as his/her only benefit instead of that provided
            in Article Two hereof).

7.    "Director" or "Directors" shall mean any member, or members of the Board
      of Directors of the Bank.

8.    "Disability" shall be as such term is defined in the Bank's long term
      disability plan, or if the Bank has no long term disability plan in effect
      at the time of the Executive's disability, shall have the meaning provided
      in Code section 22(e)(3).

9.    "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
      amended.

10.   "Termination for Cause" shall mean that the Executive, is involuntarily
      terminated from employment with the Bank based upon his commission of any
      of the following:

      (i)   a felony; or

      (ii)  any intentional act on the part of the Executive, involving personal
            profit, which causes material damage to the Bank.

      For the purpose of this Agreement, no act, or failure to act, on the part
      of the Executive shall be deemed "intentional" unless done, or omitted to
      be done, by the Executive not in good faith and without reasonable belief
      that his action or omission was in the best interest of the Bank.
      Notwithstanding the foregoing, the Executive shall not be deemed to have
      been terminated for "Cause" hereunder unless and until there shall have
      been delivered to the Executive a copy of a resolution duly adopted by the
      affirmative vote of a majority of the Directors then in office (with the
      Executive abstaining if a Director) at a meeting of the Board called and
      held for such purpose (after at least ten (10) days' notice of the
      Executive and an opportunity for the Executive, together with his counsel,
      to be heard before the Board), finding that in the good faith opinion of
      the Board, the Executive had committed an act set forth above and
      specifying the particulars thereof in detail. The number of votes needed
      to constitute a majority shall be determined based on the total number of
      Directors then serving, including any abstaining Director. Nothing herein
      shall limit the right of the Executive or his Beneficiary to contest the
      validity or propriety of any such determination.

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                                   ARTICLE TWO
                                    BENEFITS

      1. Nature of Benefits. The benefits under this Agreement provided to the
      Executive are in the nature of a fringe benefit and shall in no event be
      construed to affect or limit the Executive's current or prospective salary
      increases, cash bonuses, profit sharing distribution or credits, or any
      other benefit. Notwithstanding the foregoing, the terms and conditions of
      this Agreement shall govern, control and supersede any and all contrary or
      conflicting provisions contained in any other agreement or contract
      between the Bank and Executive, including without limitation any
      employment agreement between the Executive and the Bank.

      2. Termination of Employment. (i) The Board of Directors may, without
      cause, terminate this Agreement at any time, by giving ninety days (90)
      written notice to the Executive. In such event, the Executive, if
      requested by the Board of Directors, shall continue to render his/her
      services, and shall be paid his/her regular salary up to the date of
      termination. In addition, the Executive shall be paid on the date of
      termination a severance payment equivalent to two (2) year(s) of
      Compensation and in addition accrued vacation and those other benefits
      referred to in Section 5 of this Article Two. (ii) Notwithstanding the
      above, the Executive may, without cause, terminate the Agreement by giving
      thirty days (30) written notice to the Board of Directors.

      3. Severance Payment Upon Termination After Change in Control. Executive
      shall have the right to continued Compensation, subsequent to the
      execution of a definitive agreement ("Definitive Agreement") which will
      result in a Change in Control. In the event Executive's employment is
      terminated by the Bank for any reason including his Constructive
      Termination (other than a Termination for Cause) after the Change in
      Control, Executive shall be entitled to receive a cash lump sum payment
      equal to that provided for in Section (2) (i) of this Article Two and in
      addition accrued vacation and those other benefits referred to in Section
      5 of this Article Two. Payment of such Compensation shall

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      be made under this Article Two, Section 3 within five (5) days of
      Executive's termination.

      4. Reduction in Compensation Proscribed After Change in Control. During
      the Term of this Agreement and after a Change in Control, Executive shall
      receive as compensation, while still employed by Bank or its successor, a
      base salary equal to at least his Base Compensation as of the date of the
      Change in Control (herein the "Minimum Annual Compensation") which shall
      be payable in equal monthly installments. In addition, during such period,
      the Bank or its successor shall pay and provide the Executive at no cost
      to the Executive, all of his then-current fringe benefits, including but
      not limited to health, disability, dental, life insurance, bank automobile
      and country club memberships, if any, all of which shall be at levels and
      amounts no less favorable than levels and amounts in effect as of the date
      of Change in Control.

      5. Additional Benefits Upon Termination After Change in Control. In
      addition to the Severance Payment under Article Two, Sections 2 and 3 of
      this Agreement, for a period of two (2) years from the date of
      Termination, (the "Benefits Period"), the Executive shall continue to be
      eligible to participate in (and the Bank shall continue contributions on
      his behalf to) all health, dental, long term disability, accident and life
      insurance plans or arrangements made available by the Bank in which he or
      his dependents were participating immediately prior to the date of his
      termination, as if he continued to be an employee of the Bank and to the
      extent that participation in any one or more of such plans and
      arrangements is possible under the terms thereof, provided that if the
      Executive obtains employment with another employer during the Benefits
      Period, such coverage shall be provided only to the extent that the
      coverage exceeds the coverage of any substantially similar plan provided
      by his new employer. Furthermore, the Executive shall not be required to
      exercise any options previously granted under the Bank's Stock Option Plan
      within the three (3) months established for termination due to Retirement,
      Voluntary Termination or Involuntary Terminations. The term to exercise
      such options shall automatically continue to be that stipulated in the
      Option, as if the Executive had continued in Bank's employment.

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                                  ARTICLE THREE
                                 CONFIDENTIALITY

      1. Recognizing that the knowledge and information about, or relationships
      with, the business associates, customers, clients, and agents of the Bank
      and the business methods, systems, plans, and policies of the Bank, which
      the Executive has heretofore and shall receive, obtain, or establish as an
      employee of the Bank or otherwise are valuable and unique assets of the
      Bank, the Executive agrees that, during the continuance of this Agreement
      and thereafter, he/she shall not otherwise than pursuant to his/her duties
      hereunder, disclose without the written consent of the Bank, any material
      or substantial, confidential, or proprietary know-how, data or information
      pertaining to the Bank, or its business, personnel, or plans to any
      persons, firm, corporation, or other entity, for any reason or purpose
      whatsoever.

      2. The Executive hereby acknowledges that the services rendered or to be
      rendered by him/her are special, unique, and extraordinary character and,
      in connection with such services, he/she will have access to Confidential
      Information covering the Bank's business.

                                  ARTICLE FOUR
                            RESTRICTIONS UPON FUNDING

      The Bank shall not have any obligation to set aside, earmark or entrust
any fund or money with which to pay its obligations under this Agreement. The
Executive, his Beneficiary or any successor-in-interest to him shall be and
remain simply a general creditor of the Bank in the same manner as any other
creditor having a general unsecured claim.

      For purposes of the Code, the Bank intends this Agreement to be an
unfunded, unsecured promise to pay on the part of the Bank. For purposes of
ERISA, the Bank intends that this Agreement not be subject to ERISA. If it is
deemed subject to ERISA, it

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is intended to be an unfunded arrangement for the benefit of a select member of
management, who is a highly compensated employee of the Bank for the purpose of
qualifying this Agreement for the "top hat" plan exception under sections
201(2), 301(a)(3) and 401(a)(1) of ERISA.

      At no time shall the Executive have or be deemed to have any lien or
right, title or interest in or to any specific investment or to any assets of
the Bank; rather the Executive shall remain a general unsecured creditor of the
Bank. If the Bank elects to invest in a life insurance, disability or annuity
policy upon the life of Executive, the Executive shall freely submit to a
physical examination and supply such additional information necessary to obtain
such insurance or annuities.

                                  ARTICLE FIVE
                          DESIGNATION OF BENEFICIARIES

      Should the Executive die prior to full payment of amounts due under
Article Two, payment of all remaining vested payments shall be made to his
Beneficiaries. The Executive's written designation of one or more persons or
entities as his Beneficiary(ies) shall operate to designate the Executive's
Beneficiary under this Agreement. The Executive shall file with the Bank a copy
of his Beneficiary designation on the form supplied to the Executive by the
Bank. The last such designation form received by the Bank shall be controlling,
and no designation, or change or revocation of a designation shall be effective
unless received by the Bank prior to the Executive's death.

      If no Beneficiary designation is in effect at the time of an Executive's
death, if no designated Beneficiary survives the Executive or if the otherwise
applicable Beneficiary designation conflicts with applicable law, the
Executive's estate shall be the Beneficiary.

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                                   ARTICLE SIX
                          INTERPRETATION AND AMENDMENT

          The Board shall have the exclusive power and authority to interpret
and construe the Agreement. The Board may appoint a Committee to administer this
Agreement. The Board may engage agents or experts to assist it and may engage
legal counsel, who may or not be the regular counsel to the Bank. The Agreement
may be amended, suspended or terminated, in whole or in part, only by a written
instrument signed by a duly authorized officer of the Bank and by the Executive.

                                  ARTICLE SEVEN
                             TERMINATION AND RENEWAL

      1.    Termination. This Agreement shall terminate on the earliest of:

      (i)   (a) the second anniversary of the first event that constitutes a
            Change in Control, or

            (b) the third (3rd) anniversary of the date of execution of this
            Agreement, in the event it has been automatically extended pursuant
            to Section 2 of this Article Seven, whichever occurs last.

      2.    Renewal. On each anniversary of the date of execution of this
            Agreement, the term hereunder for purposes of this Article Seven,
            Section 1 (i)(b) above shall automatically be extended for an
            additional one (1) year period beyond the then effective expiration
            date solely therein, unless either party receives written notice,
            not less than 90 days prior to the anniversary date, advising the
            other party that this Agreement shall not be further extended. Any
            such written notice shall not affect any prior extensions of the
            terms of employment hereunder.

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                                  ARTICLE EIGHT
                                  MISCELLANEOUS

      1.    Alienability and Assignment Prohibition. Neither the Executive, his
            spouse nor any other Beneficiary under this Agreement shall have any
            power or right to transfer, assign, anticipate, hypothecate,
            mortgage, commute, modify or otherwise encumber in advance any of
            the benefits payable hereunder nor shall any of said benefits be
            subject to seizure for the payment of any debts, judgements, alimony
            or separate maintenance owed by the Executive or his Beneficiary,
            nor be transferable by operation of law in the event of bankruptcy,
            insolvency or otherwise.

      2.    Revocation. It is agreed by and between the parties hereto that,
            during the lifetime of the Executive, this Agreement may be amended
            or revoked at any time or times, in whole or in part, by the mutual
            written assent of the Executive and the Bank.

      3.    Gender. Whenever in this Agreement words are used in the masculine
            or neuter gender, they shall be read and construed as in the
            masculine, feminine or neuter gender, whenever they should so apply.

      4.    Effect on Other Corporate Benefit Plans. Nothing contained in this
            Agreement shall affect the right of the Executive to participate in
            or be covered by any qualified or non-qualified pension, profit
            sharing, group, bonus or other supplemental compensation or fringe
            benefit plan constituting a part of the Bank's existing or future
            compensation structure.

      5     Headings. Headings and Subheadings in this Agreement are inserted
            for reference and convenience only and shall not be deemed a part of
            this Agreement.

      6.    Applicable Law. The validity and interpretation of this Agreement
            shall be governed by the laws of the Commonwealth of Puerto Rico.

      7.    No employment Agreement. No provision of this Agreement shall be
            deemed or construed to create specific employment rights to the
            Executive or otherwise to limit the right of the Bank to discharge
            the Executive at any time with or without cause. In a similar
            fashion, no

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            provision shall limit the Executive's rights to voluntarily sever
            his employment from the Bank at any time.

      8.    Withholding of Taxes. The Bank shall deduct from the amount of any
            payment made pursuant to this Agreement any amounts required to be
            paid or withheld by the Bank with respect to federal or state taxes.
            By executing this Agreement, the Executive agrees to all such
            deductions.

      9.    Severability. In case any one or more of the provisions contained in
            this Agreement shall be invalid, illegal or unenforceable in any
            respect, the validity, legality and enforceability of the remaining
            provisions in this Agreement shall not in any way be affected or
            impaired.

      10.   Arbitration.

            a.    In the event of any claim or controversy arising out of or
                  relating to this Agreement or the breach of this Agreement,
                  the parties agree that all such claims or controversies shall
                  be resolved by final and binding arbitration in San Juan,
                  Puerto Rico, in accordance with the Commercial Arbitration
                  Rules of the American Arbitration Association in effect on the
                  date when the claim or controversy first arises. Either party
                  must communicate its request for arbitration under this
                  section in writing ("Arbitration Notice") to the other party
                  within one hundred twenty (120) days from the date the claim
                  or controversy first arises. Failure to communicate
                  Arbitration Notice within one hundred twenty (120) days shall
                  constitute a waiver of any such claim or controversy.

            b.    All claims or controversies subject to arbitration under this
                  section shall be submitted to an arbitration hearing within
                  thirty (30) days from the date Arbitration Notice is
                  communicated by either party. All claims or controversies
                  submitted to arbitration under this section shall be resolved
                  by a panel of three (3) arbitrators who are experienced in the
                  arbitration of employment disputes. These arbitrators shall be
                  selected in accordance with the applicable Commercial
                  Arbitration Rules or by agreement of the parties. Either party
                  may request that the arbitration proceeding be

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                  stenographically recorded by a Certified Shorthand Reporter.
                  The arbitrators shall issue a decision on any claim or
                  controversy within thirty (30) days from the date the
                  arbitration hearing is completed. The parties shall have the
                  right to be represented by legal counsel at any arbitration
                  hearing. The costs of any arbitration hearing, including the
                  attorneys' fees incurred by both parties (including any costs,
                  expenses or attorneys' fees incurred in filing any lawsuit to
                  compel arbitration under subsection [c], if applicable), shall
                  be paid by the parties in the same proportion as the amount
                  granted under the arbitration decision to each party bears to
                  the aggregate claims interposed by each party in the
                  arbitration procedure.

            c.    The arbitration provisions in this section are subject to the
                  Federal Arbitration Act 9 U.S.C. Sections 1 et seq. (West
                  1998) (or any successor provisions) and may be specifically
                  enforced by any party, and submission or arbitration
                  proceedings compelled, by any Court of competent jurisdiction.
                  The decision of the arbitrators may be specifically enforced
                  by any party in any court of competent jurisdiction.

      IN WITNESS WHEREOF, the parties hereto acknowledge that each has carefully
read this Agreement and executed the original thereon on the day and year first
written above.

EUROBANK                                      THE EXECUTIVE

By: /s/ Rafael Arrillaga Torrens, Jr.                By: /s/ Yadira Mercado
    ------------------------------------                ------------------------
    Rafael Arrillaga Torrens, Jr.                       Yadira Mercado