On Feb. 23, 1979, the executive committee of the National Bank of Washington approved a $2.1 million loan to D.C. developer Jeffrey N. Cohen to renovate an office building on McPherson Square in downtown Washington.

Another major beneficiary of the loan was bank director and general counsel Ronald G. Nathan, who abstained from voting on the loan, but later failed to disclose -- as required by law -- that 10 days earlier he had signed an agreement to become an investor in the project.

On March 28, 1979, the late bank chairman, Joseph B. Danzansky, voted with the majority of NBW's executive committee to extend a $650,000 line of credit and a $150,000 unsecured loan to a Washington law firm -- Danzansky, Dickey, Tydings, Quint & Gordon.

Danzansky "pointed out that although he was founder of the firm he no longer retains any financial interest in it," bank minutes show. What Danzansky failed to point out was that he was involved in millions of dollars worth of business deals with various members of the firm, where his son is a partner. o

On Oct. 24, 1979, bank president Walton W. (Hank) Sanderson voted to approve a $100,000 letter of credit to developers Ronald M. (Mickey) Nocera and Peter Carley to cover cost overruns on gas well drillings in West Virginia.

Though it was known to some officers and directors of the bank, the records give no indication that Sanderson disclosed to the directors who voted for him that he was a partner with Nocera and carley in other gas well deals. Privately, some of those directors say they never knew Sanderson was a partner in those deals.

Conflicts of interest such as these have become a way of life at the National Bank of Washington, the city's oldest and third largest bank. Some bank officers and directors were frequently involved in business partnerships with one another, their children and major customers of the bank. But these interests were sometimes hidden from the bank's depositors, stockholders and the public.

These deals became so pervasive that the financial interests of key bank executives and directors became hopelessly intertwined with those of the bank's major customers, seriously jeopardizing the objectivity of the bank's decision makers.

Today, the bank has $53 million in criticized loans -- loans identified by federal bank examiners as having real or potential weaknesses -- the highest level of such loans in the bank's 171-year history.

The dollar volume of loans to NBW's directors, for instance, has increased threefold in recent years, from $4.6 million in 1973 to $13.5 million last year.

The questionable practices in business dealings between officers, directors and customers range from the appearance of conflict of interest to genuine conflicts of possible criminal misrepresentation, as with some loans arranged by Nathan, a protege of Sam Church Jr., president of the United Mine Workers union.

The union owns three quarters of NBW's stock.

Nathan has not been available for comment on his role in many NBW loans. He resigned his post on Aug. 4 and is now a target of a federal grand jury investigating the bank. His lawyer denies any criminal conduct on Nathan's part.

Ironically, many of the conflicts of interest detailed in pages of the executive committee's confidential journal were played out in the face of a strong code of ethics policy enacted by the board of directors in June 1978.

Section 3.2 of the code required officers and directors to pledge that they would never vote on or try to influence loans to anyone with whom they had financial dealings or to any companies in which they had a financial interest.

Conflicts of interest were not taken seriously by many of the officers and directors of NBW, the minutes show. With an apparent nudge of the elbow from one officer to another, a potential conflict on an upcoming loan often would be acknowledged in passing, but ignored when formal action was taken.

Some directors and officers scrupulously avoided even the appearance of conflicts of interest. And some of the directors and officers who took such conflicts most seriously have resigned their positions at NBW, saying privately that they were disturbed by what was taking place.

The following examples document the pattern of conflicts, questionable loan practices and undisclosed dealings that have marked the course of the bank in recent years. A Lunch at La Bagatelle

In the mid-1970s, NBW president Hank Sanderson hoped to corner the market on the next generation of bigtime Washington developers, the young men and women who would put their imprint on the city's boxy skyline on the same scale as the older generation -- Oliver T. Carr Jr., Charles E. Smith, Morris Cafritz.

Jeffrey Neil Cohen, 31, was just the kind of rising young real estate star Sanderson sought. Cohen was a lawyer and son of a wealthy developer who, with the backing of his father's multimillion dollar financial statement on some of his early projects, had demonstrated that he was an insightful and shrewd businessman. Under Sanderson's sponsorship, Cohenn had borrowed a few hundred thousand dollars from the bank. So it was natural that when Nathan became the bank's general counsel and a director in January 1978, he wanted to meet Cohen.

Nathan had just arrived from the United Mine Workers union, where he had helped the ticket of Arnold Miller and Sam Church Jr. win reelection. His reward was the top legal job at the bank. Nathan told the bankers that he was interested in other investments.

[At NBW, the title of general counsel meant Nathan handled the legal affairs of the bank from his private law office and was not paid by a salary, but by fees, which last year amounted to $191,583. The bank also employs a salaried inside counsel.]

Soon after arriving, Nathan asked the bank president to set up a lunch with Cohen. When they met at La Bagatelle restaurant on K Street downtown, the young men found they had much in common -- both in their early 30s, both lawyers and both intensely interested in Washington real estate.

After the lunch, Nathan subtlely began promoting Cohen within the bank, introducing him to the right people -- other directors, among them, executive vice president Dale L. Jernberg, whom Nathan was pushing as the next bank president. Between October 1978, and February 1979, bank records show that loans to Nathan's new friend soared to a total of $6.6 million.

In late 1978, Cohen and Nathan made a verbal agreement that Nathan would be included in the McPherson Square office project, the renovation of 915 15th Street NW, on the east side of the square, an internal bank inquiry later found.

On Feb. 13, 1979, Nathan signed a limited partnership agreement with Cohen in which Nathan agreed to pay $47,500 for a 7 percent interest in the building, the appraised value of which was $2.5 million in its pre-renovated state. The tax benefits to Nathan, as well as his ability to "cash out" of the deal by refinancing or selling his appreciated share, were worth tens of thousands of dollars in just a few years.

[Cohen later said in an interview that there was nothing improper in the transaction and that Nathan got the same deal as other investors in the building.]

Three days after Nathan and Cohen signed the agreement, the bank's senior officers met and recommended that the $2.1-million loan be made. One week later, the loan was presented to the executive committee where Nathan was present, bank records show.

The terms of the loan were spelled out by the minutes in the dry cadence of banker's shorthand: "secured by a first deed of trust maturing April 20, 1980, guaranteed by Jeffrey N. Cohen and Francine G. Cohen, repayment from permanent loan to be made by Aetna Life Insurance Company, rate floating at 1.5% over prime with a 1% fee ($21,000)."

About half of the loan, $1 million, would be used to repay National Savings & Trust Co., which loaned Cohen the money to buy the building. The rest of the loan would be used for renovation.

It was about 8:15 a.m. when the bank's real estate officer completed his presentation of Cohen's loan. Thirteen directors were in the room. Nathan was silent.

After the vote was taken, Nathan asked the committee's secretary, Margaret Ferguson, to record him as abstaining, bank records show. There were no questions asked, no explanations given.

[Later in the year, when directors filled out a "Statement of Interests" required by federal law to monitor potential conflicts of interest, Nathan did not include the McPherson Square partnership.]

Just one week after the executive committee approved the loan, the directors were asked to approve another $280,000 to Cohen for the purchase of 10,000 shares of stock in another bank, the D.C. National Bank, where Cohen is now the largest single stockholder.

Questions were raised immediately by directors who noted that Cohen had listed the value of the stock he was proposing to buy as an asset in the financial statement he had submitted to support the loan. The statement was not certified by an accountant, a usual requirement for such a large loan.

The minutes show that Nathan supported the stock-purchase loan to Cohen. There were no abstentions in the vote. Other directors did, however, indicate their displeasure with the presentation by stating in the minutes, "It was noted that . . . in the future, prior to consideration of loan requests, financial statements prepared by an auditor, preferably certified, would be requested."

In October 1979, Nathan and Cohen entered into a second business deal with another NBW director, Marvin L. Goldman, owner of Washington's K-B Theatres chain. Goldman, his son, Ronald Goldman and Nathan formed a corporation called DuPont Circle Ice Cream Inc. to operate a Haagen Dazs store just north of the circle, D.C. business records show.

Cohen played a key role in helping the bank directors start the business by negotiating the lease on the Connecticut Avenue building where the shop is located. In return, Cohen was given a share in the business, though D.C. corporation records do not list him as a partner. A $21,000 Soccer Player

The late Joseph B. Danzansky, chairman of NBW and before that president and chairman of Giant Food Inc., was a born booster.

He boosted the bank's business by bringing customers to it, and he boosted his own interests, his family's and those of his friends.

At the time of his death last November, Danzansky held more than $2 million in loans from NBW, a fact that was criticized by federal bank examiners because executive bank officers are forbidden by law to borrow more than $10,000 from their institutions.

[Bank officials contended that Danzansky's duties did not fulfill the legal definition of executive officer. For his $80,000 a year salary, his duties were initially defined as presiding over meetings only. Therefore, the bankers contended, he was not required to comply with the law.]

What the bank did for Danzansky, Danzansky also did for the bank. During his nearly 20 years as an officer of Giant, he maintained the lion's share of the corporation's accounts at the bank, where he first served as a director.

Danzansky's many business interests in Miami also helped him convince the officers of Florida's largest public utility, Florida Power & Light Co., to open a $4 million line of credit with NBW.

As a member of the bank's executive committee, Danzansky often found himself voting on loans to business ventures in which he or close associates held interests.

For example, in April, 1978, bank records indicate that Danzansky was present and voting at the executive committee meeting that approved a $21,000 letter of credit to a Dutch bank for the purchase of a new Washington Diplomats soccer player.

At the time, Danzansky was a part owner of the Diplomats through San Juan Racing Association, a $43 million Delaware corporation formed in 1954 to operate a horsetrack in Puerto Rico. Joseph Danzansky was director of the racing corporation. His son, Stephen Danzansky, was and still is president of the soccer club.

Two months later, in June, 1978, the executive committee was considering a $600,000 line of credit to Bruce G. Philipson and his father Robert to finance a Calvert County development company, Park Chesapeake, Inc.

The executive committee minutes make no mention that Robert Philipson, founder of an accounting firm that bears his name, and Joseph Danzansky both were part owners of San Juan Racing Association. Philipson was corporate treasurer.

Danzansky voted to approve the loan, no potential conflict acknowledged, bank records show.

In like manner, the late NBW chairman did not abstain from voting for $800,000 in loans to his former law firm -- Danzansky, Dickey -- where his son, Stephen, is a partner. Three other members of the firm were involved in multimillion dollar business and real estate deals with Danzansky.

For instance, firm members Marvin Willig and Bernard Gordon were partners with Danzansky in Newport Motel Inc. and Newport Associates South, two Florida partnerships that own a Miami Beach motel and adjoining land.

And, Raymond Dickey and Willig were, like Danzansky, directors at San Juan Racing. A $4-Million Loan

Winding Brook Joint Venture is one of those real estate deals that virtually anyone would want to get into.

The National Bank of Washington would be bankrolling most of the construction costs. Repayment of the bank loans would come from the sale of 492 townhouses at the development in Chantilly, Va.

If sales of the units occurred at a brisk enough pace, very little additional money would have to be raised to carry the costs of the project.

In August 1979, four partners in Applejack Developers Inc. asked the bank for a $4 million line of credit to finance construction of the project under a "joint-venture" arrangement.

The developers would manage the project.

However, another group of participants, called Chantilly-Fifty Associates Inc., would act as the equity partners, providing capital funds to complete houses where bank financing fell short. In return, the equity partners would get a percentage of the sales.

The equity partners on the project were not strangers to the bank: Stephen I. and Richard F. Danzansky, sons of the bank chairman; Marvin Goldman and Ronald Nathan, both bank directors; Bernard Gordon, Marvin Willig and Robert B. Washington Jr. -- all partners in the Danzansky, Dickey law firm.

Because bank directors were involved in the deal, consideration of the $4-million loan normally would have to go before the full 25-member board of directors under federal law regulating loans to bank insiders.

But the loan never went to the full board. The minutes show that bank officials "obtained a legal opinion from house counsel that we are not in violation of [federal law]" because the directors involved in the deal "will not be guarantors on the loan."

Because the development deal was a joint venture, the partners were able to structure it so that the builders who would manage the project would sign for the construction loan.

That left the partners with ties to the bank one step removed from the financing. There was no question, however, that the NBW directors, Danzansky's sons and his former law partners could benefit from the $4-million loan.