Hank Sanderson got the first indication that his career was over as the president of the National Bank of Washington on a chilly March night in 1978, sitting in the bank's $30,000-a-year skybox at the Capital Centre. John Denver was singing on the stage below.

Sanderson, still collegiate-looking at 38 and prone to brashness, had been drinking steadily that evening, and apparently was chafing at the company in the box -- the new United Mine Workers vice president, Sam Church Jr., and Church's friend, Willie Runyon. Both were directors of the bank, and the union controlled the majority of the bank's stock.

When Runyon pressed Sanderson about money to help pay off the election debts of Church and union president Arnold Miller, Sanderson did not bother to temper his reply.

Several versions of the encounter left the skybox that night, but essentially, those who witnessed it said, Sanderson angered the union men by telling them they could expect to raise very little money in Washington and only "for the right man" -- presumably someone other than Miller or Church.

Sanderson's words brought Sam Church out of his chair. Some in the box feared that Church might go at Sanderson with his fists. But instead, the union men left abruptly and regrouped in a hotel room with Miller, who had not been at the Capital Centre. Church recounted the incident to Miller and the union leaders stayed up most of the night, deliberating whether to fire Sanderson at the annual stockholders' meeting the next day. They decided on a more gradual course.

Within nine months, Sanderson had been shunted into a powerless job as vice chairman of the bank. A year after that, he was gone, along with board chairman Donald D. Notman, a somewhat aloof executive who had deferred to Sanderson on most local banking matters.

Notman and Sanderson were two of the casualties at NBW, victims of a struggle not only with the volatile mine workers union, but also of a continuing battle with federal regulatory officials, who for nearly a decade have consistently criticized banking practices at the oldest and third largest bank in the city.

They were two of six top officials -- including two presidents and two chairmen -- fired by UMW leaders in a seven-year period, as the union, asserting its control, has orchestrated a musical chairs game with bank officers, leaving the institution in deep crisis and serious trouble.

By the end of their five-year tenure, NBW's lending portfolio held nearly $50 million in loans that were considered by bank examiners to have potential or real deficiencies in collateral or means of repayment.

Notman sponsored two loans that were among the bank's greatest losses, and federal bank examiners recommended that Sanderson lose his coveted authority to make $100,000 unsecured loans on his own signature because he allegedly did not understand lending. The recommendation was later withdrawn.

The chronicle of troubled loans, unforeseen recession and bad lending decisions during the five-year tenure of Notman and Sanderson is detailed in 3,000 pages of executive committee minutes obtained by The Washington Post and more than 100 interviews conducted over five months. Billed as Dynamic Duo

The Washington careers of Notman and Sanderson had grown together. When they were selected in 1973 after a seven-month search by a Chicago head-hunting firm, the two were billed as a dynamic duo that would bring new vitality to NBW in the stiff-collared world of Washington banking.

They had been chosen from nearly 100 candidates reviewed by a four-man search committee. The committee wanted a Mr. Outside and a Mr. Inside, the first from an out-of-town bank of national stature and the second from the heart of the Washington business establishment.

Walton W. (Hank) Sanderson was a home-grown product of established Washington: he attended Bethesda-Chevy Chase High School and the University of Maryland. Sanderson was a second-generation. National Bank of Washington man. His father, Walton L. Sanderson, retired as first senior vice president of the bank in 1970 after a 48-year career in local banking.

Sanderson was 34 when he was catapulted from his job in the bank's marketing department over several more senior officers to become NBW's president.

Notman, 49, a backwater banker from Marine Midland Bank in Buffalo, was plucked from an obscure job as government relations vice president and brought south to chair the NBW board.

The selection of Notman and Sanderson was also billed as part of the reform movement that had swept the union in 1972, throwing out the corrupt regime of W.A. (Tony) Boyle, who later was convicted of murdering his union rival, Joseph A. Yablonski, in 1969. Ousted with Boyle was his high-salaried, aristocratic NBW chairman, True Davis.

Some of the bank's troubles during Notman and Sanderson's tenure could be attributed to a major recession, a downtown in the real estate industry, and still others to foundering loans made under Davis' management. But the new bankers also brought troubles of their own, the records show.

Within three years after they took control of the bank, Notman and Sanderson were in serious trouble with the Office of the Comptroller of the Currency, the arm of the Treasury Department charged with regulating national banks.

Bank examiners from the comptroller's regional office in Richmond found that credit procedures at the bank were lax, and that the bank's officers were too willing to make loans that lacked a strong, certain source of repayment. The bankers were told they relied too much on non-income producing real estate as collateral instead of income-producing enterprises able to pay down the principal of the loan as well as the interest.

Moreover, at various times while they were running the bank, Notman and Sanderson were criticized by federal bank examiners for:

Selling off the buildings and property on which bank buildings and branches were located to help make the bank's profit statement look good in the short run. [The bankers replied that getting out of the real estate business made economic sense.]

Using property sales and other one-time income gains, such as the confiscation of dormant bank accounts, as a means of increasing annual profits by 15 percent, the figure that triggered the executive bonus plan. Under the plan, bonuses of up to $75,000 -- equal to one-half of their salaries -- were paid to top officers in equal installments over three years.

[The bank's officers have managed to show earnings increases of 15 percent for six straight years. One consequence is that the bank no longer owns large equity interests in buildings and real estate worth more than $13 million.]

Ignoring and circumventing professional credit analysts who opposed making loans. A confidential 1976 bank examination report concluded that "senior management has neutralized the [credit] department's ability to prevent subpar loans from being booked [made]."

By June of 1976, the relations between NBW officials and the federal bank examiners were at their worst. Frank Wille, the former chairman of the Federal Deposit Insurance Corp. (FDIC), observed in a consultant report on the bank that relations with the comptroller's office showed "a lack of rapport bordering on distrust and hostility."

There was good reason for the strained relations. In June 1976, a highly confidential examiner's report criticized $47 million in NBW loans as having potential or definite weakness, a level twice as high as that considered reasonable by banking experts. Bank examiners said $34.4 million of those loans were either substandard, doubtful or unlikely to be paid -- "classified" loans in the jargon of banking.

The troubled loans were 10 times greater than the bank's annual profits and represented more than 10 percent of the bank's entire outstanding loans.

It was a serious situation. Privately, the bank examiners told the officers of the bank that NBW had been placed on the comptroller's supersecret watch list. In the parlance of the banking industry, NBW had become a "problem bank." Prior Management Blamed

Notman and Sanderson blamed the majority of their troubles on prior management. True Davis was not a banker, they told their colleagues, and some of his loan officers had made a lot of bad loans that were now coming home to roost.

Among those loans blamed on Davis' management was a $3.5 million loan to Reality Equities Corp., a real estate investment trust.

When the loan went into default, instead of taking legal action to collect from collateral properties, the bank settled for retrieving what funds it could and took more than $1 million in losses.

During this same period, developer Sheldon Magazine, owner of the stately Hay-Adams Hotel across LaFayette Square from the White House, fell into default on $7.7 million in loans to NBW and four other Washington financial institutions that were backing his development projects.

Again, instead of taking legal action to confiscate collateral, the bank accepted the offer of an unidentified Mexican investor who was willing to buy the $7.7 million in notes for $2.8 million, representing a $5 million loss for the Washington area banks. NBW's share of the loss was about $1 million.

When bank examiners returned to NBW in March 1977, they criticized $49.3 million in loans.

But other signs were improving. Classified loans -- those carrying the highest potential for trouble under the "substandard, doubtful and loss" definitions -- had dropped from $34 million to just under $26 million. Loans written off, which had jumped froim $1.5 million in 1975 to $3.5 million in 1976, had been virtually cut in half.

Still, the jury was out on the Notman-Sanderson team, according to the bank examiners.

The bank consultant who reviewed NBW's condition in 1977 wrote, "While NBW's loan problems may be receding, the bank still has a long way to go to bring the total of criticized loans down below $20 million and the total of classified loans below $10 million -- figures which I think they regulatory authorities would be likely to accept as 'reasonable' for a bank like NBW."

The arrival of the long-awaited bank examination report in 1977 followed months of occupation by examiners poring over the institution's deepest secrets.It proved especially embarrassing to Sanderson. A section of the report intended only for federal banking supervisors in Richmond inadvertently was included in the report furnished to NBW officials.

To Sanderson's surprise, he learned the examiner had recommended that he lose his authority to make $100,000 unsecured loans without the approval of the bank's loan committee, a power afforded only to a handful of men and one that brings with it the highest banking prestige.

The recommendation carried with it no explanation other than a contention that Sanderson did not understand lending.Sanderson immediately protested to the authorities in Richmond. Federal officials subsequently removed the page carrying the recommendation from all copies of the examination report. Sanderson kept his lending authority, even though federal examiners clearly had questioned his basic qualifications. 1978 a Year of Trouble

Just 12 months before the angry and bitter confrontation between Sanderson and the mine workers officials at the Capital Centre, the bank's consultant concluded, "The real test of the present management's ability to make sound credit judgements probably will be revealed in the next few examinations of the bank when it will become increasingly difficult to lay the blame on prior management."

But 1978 proved to be a year filled with trouble. By April, the loan delinquency report provided to each director on the executive committee recited a litany of looming bad news.

Two large real estate investment trusts that Notman had brought to the bank as borrowers had fallen into default. Republic Mortgage Investors Co. of Coral Gables, Fla., was past due on a $940,000 loan. Dominion Mortgage and Reality Trust of Buffalo was past due on a $1.3 million loan. Both eventually entered bankruptcy proceedings and NBW sustained heavy losses. In addition, more than $100,000 was still outstanding from Reality Equities with little prospect of repayment. And, the bank was carrying $333,333 as its share of Penn Central debt from loans past due since 1971.

Most seriously, in December 1977 and the early months of 1978, the business ventures of Joseph I. Goldstein, entrepreneurial brother of Maryland's comptroller Louis L. Golstein, were heading toward bankruptcy.

Goldstein, whose major enterprise was the Wilson Line boat excursion operating between the Southwwest Washington waterfront and Mount Vernon, had borrowed more than $2 million from NBW to finance his various ventures. Federal bank examiners reviewed all of NBW's outstanding loans later that year and recommended that $2.2 million worth of loans be written off as losses. Half of these write-offs represented the debts of Goldstein, who eventually went into bankruptcy.

Something else happened in 1978. NBW's board was radically restructured after the bitter mine workers election campaign that was a backdrop for Sanderson's feud with union men in the Capital Centre skybox. As never before, the mine workers put their own members and close associates in the board room. Some of them did not understand many fundamental banking concepts. Some were businessmen from Baltimore or other parts of the country who knew little of Washington business.

The union men installed a new chief executive to replace Sanderson in late 1978: Dale L. Jernberg, a lowkey trust officer who was willing to accept greater influence from the union men in the bank's affairs.

Over the next two years, the bank made some of the worst loans in its history: $4.5 million to the Laurel Raceway north of Washington; more than $4 million to troubled companies of Washington condominium developers Robert D. Holland and Bruce D. Lyons, and others.

In the summer of 1980 federal bank examiners leveled new and unusually fierce criticism at NBW. There were fears that NBW had once again been placed on the comptroller's problem bank list.

In the second quarter of 1980, as bank officials were forced to write off $1.6 million in new loan losses and hundreds of thousands of dollars in legal fees for internal investigations, the bank's profits fell into a tailspin, 69 percent below the same period a year earlier.

Instead of retreating from their domineering involvement in the bank's affairs, the union men under Sam Church increased their grip on decision-making at the bank.

They fired Jernberg and two other senior officers last month. Their search continues for a new chief executive for the National Bank of Washington -- the fourth in seven years.