SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

Commission File Number: 1-9202

ChoiceOne Financial Services, Inc.
(Exact Name of Registrant as Specified in its Charter)

Indicate by checkmark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.          Yes    X             No        

As of July 31, 2002, the Registrant had 1,547,857 shares of common stock outstanding.

CHOICEONE FINANCIAL SERVICES, INC.
INDEX TO FORM 10-Q

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements.

ChoiceOne Financial Services, Inc.

CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements.

ChoiceOne Financial Services, Inc.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

See accompanying notes to consolidated financial statements.

ChoiceOne Financial Services, Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)

See accompanying notes to consolidated financial statements.

ChoiceOne Financial Services, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

See accompanying notes to consolidated financial statements.

ChoiceOne Financial Services, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include ChoiceOne Financial Services, Inc. (the "Registrant") and its direct and indirect wholly owned subsidiaries, ChoiceOne Bank (the "Bank"), ChoiceOne Mortgage Company of Michigan (the "Mortgage Company"), ChoiceOne Insurance Agencies, Inc. (the "Insurance Agency") and ChoiceOne Travel, Inc. (the "Travel Agency"). Effective April 1, 2001, the Registrant's management closed the Travel Agency. Intercompany transactions and balances have been eliminated in consolidation.

The consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information, prevailing practices within the banking industry and the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

The accompanying consolidated financial statements reflect all adjustments ordinary in nature which are, in the opinion of management, necessary for a fair presentation of the Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001, the Consolidated Statements of Income for the three- and six-month periods ended June 30, 2002 and June 30, 2001, the Consolidated Statements of Changes in Shareholders' Equity for the six-month periods ended June 30, 2002 and June 30, 2001, and the Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2002 and June 30, 2001. Operating results for the six months ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002.

The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001.

Stock Transactions

A total of 1,996 shares of common stock were issued to the Registrant's Board of Directors for a cash price of $29,000 under the terms of the Directors' Stock Purchase Plan in the first two quarters of 2002. A total of 4,479 shares of common stock were issued to shareholders for a cash price of $46,000 under the Dividend Reinvestment and Supplemental Purchase Plan. Approximately 510 shares of common stock were released under the Employee Stock Ownership Plan.

Reclassifications

Certain amounts presented in prior periods have been reclassified to conform to the 2002 presentation.

NOTE 2 - ALLOWANCE FOR LOAN LOSSES

An analysis of changes in the allowance for loan losses follows:

Information regarding impaired loans follows:

Information regarding impaired loans follows:

NOTE 3 - EARNINGS PER SHARE

A computation of the basic earnings per share and diluted earnings per share computations follows:

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion is designed to provide a review of the consolidated financial condition and results of operations of ChoiceOne Financial Services, Inc. (the "Registrant" or "ChoiceOne") and its direct and indirect wholly owned subsidiaries, ChoiceOne Bank (the "Bank"), ChoiceOne Insurance Agencies, Inc. (the "Insurance Agency") and ChoiceOne Travel, Inc. (the "Travel Agency"). On April 1, 2001, the Registrant's management closed the Travel Agency. The effect of closing the Travel Agency has had an immaterial impact on the consolidated financial statements. This discussion should be read in conjunction with the consolidated financial statements and related footnotes.

FORWARD-LOOKING STATEMENTS

This discussion and other sections of this report contain forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates, and projections about the financial services industry, the economy, and about the Registrant itself. Words such as "anticipates," "believes," "estimates," "expects," "forecasts," "intends," "is likely," "plans," "predicts," "projects," and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions ("risk factors") that are difficult to predict with regard to timing, extent, likelihood, and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed, implied or forecasted in such forward-looking statements. Furthermore, the Registrant undertakes no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events, or otherwise.

Risk factors include, but are not limited to, changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; changes in banking

RESULTS OF OPERATIONS

Summary

Net income increased $29,000 or 10% in the second quarter of 2002 compared to the same period in 2001. Net income for the first six months of 2002 increased $35,000, or 5% from the same period in the prior year. The increase in net income was due to increased net interest income, a lower provision to the allowance for loan losses and increased noninterest income, offset by additional noninterest expense.

The increase in net interest income was primarily due to a change in the Bank's mix of interest bearing deposits for 2002 compared to the same period a year ago. Higher customer service fees, gains from the sale of loans and investment securities fueled growth in noninterest income. The lower provision to the allowance for loan losses was primarily due to the reduced level of net charge-offs in 2002 versus 2001. Noninterest expense rose due to the salaries and benefits for several new employees as well as higher commissions to mortgage originators based on increased loan production for the six months ended June 30, 2002. Higher occupancy expenses and professional services also boosted noninterest expense in 2002 over the prior year.

Return on average assets was 0.73% for the first six months of 2002, compared to 0.71% for the same period in 2001. Return on average shareholders' equity was 8.05% for the first half of 2002, compared to 7.97% for the comparable period of 2001.

Dividends

Cash dividends of $263,000, or $0.17 per common share were declared in the second quarter of 2002, which is $0.01 more than the per share amount declared in the second quarter of 2001. The cash dividends paid in the first six months of 2002 were $511,000 or $0.33 per common share, compared to $0.32 per common share in 2001. The cash dividend payout percentage was 69% for the first six months of 2002, compared to 71% in the same period a year ago.

The Registrant's Board of Directors declared a 5% stock dividend payable on the Registrant's common stock on April 17, 2002. The dividend was paid May 31, 2002 to shareholders of record as of May 9, 2002. Earnings per share data for all periods presented have been adjusted for this stock dividend and the 5% stock dividend paid in 2001.

Interest Income and Expense

Tables 1 and 2 on the following pages provide information regarding interest income and expense for the six-month periods ended June 30, 2002 and 2001, respectively. Table 1 documents average balances and interest income and expense, as well as the average rates earned or paid on assets and liabilities. Table 2 documents the effect on interest income and expense of changes in volume (average balance) and interest rates. These tables are referred to in the discussion of interest income, interest expense and net interest income below.

Table 1 - Average Balances and Tax Equivalent Interest Rates (Dollars in Thousands)

______________________

Table 2 - Changes in Tax Equivalent Net Interest Income (Dollars in Thousands)

_________________

Net Interest Income

As shown in Tables 1 and 2, tax equivalent net interest income increased $234,000 in the first six months of 2002 compared to the same period in 2001. This is primarily because the Bank has increased the volume of checking accounts and investment securities. The Bank has also experienced a change in the deposit mix as more customers are shifting from high rate time deposits to demand deposits. The overall reduced rate earned on interest-earning assets has more than been offset by overall lower rates paid on deposits and other funding sources.

The average balance of loans has decreased $1.2 million in the six months ended June 30, 2002 compared to 2001. Additionally, the recent interest rate cuts have greatly reduced the yield earned on all loans originated in 2002 and existing variable rate loans indexed to prime or the U.S. Treasury note rates. This has caused interest income from loans to fall approximately $1.1 million for the six months ended June 30, 2002, compared to the period a year ago. The average balance of investment securities grew $6.4 million since June 2001, offset by lower earning yields thereby causing interest income to increase $120,000 from the period a year ago. The Bank was primarily a purchaser of federal funds in the first six months of 2002 as compared to 2001, when the Bank was selling federal funds. This caused a decrease of $31,000 in income from other interest bearing assets in 2002 versus 2001.

The mix of deposits has changed from June 2001 to June 2002 as interest-bearing demand deposits have increased $8.4 million, savings deposits increased $0.7 million, and time deposits have dropped $8.0 million. This change

Net interest income spread (from Table 1) was 3.80% for the first six months of 2002, compared to 3.52% for the first six months of 2001. The net interest income spread was 3.48% for the twelve months ended December 31, 2001, and 3.74% for the three months ended March 31, 2002. The average yield on interest-earning assets was 7.71% at June 30, 2002, compared to 8.97% at June 30, 2001. The average rate on interest-bearing liabilities was 3.91% at June 30, 2002, compared to 5.45% at June 30, 2001. The improvement over 2001 was primarily due to reduced rates paid on interest-bearing liabilities offset by the reduced yields earned on interest-bearing assets. Also, a change in the mix of deposits allowed management to be less dependent on wholesale funds. Management expects the trend of lower-cost funding to continue until possibly the end of 2002.

The Federal Reserve Bank's Open Market Committee (the "FOMC") has cut the federal funds interest rate 475 basis points since December 2000. Many banks, including ChoiceOne Bank, have dropped their prime lending rate each time that the federal funds rate has been cut. The Registrant cannot determine if and when the FOMC may boost the federal funds interest rate, but it intends to grow its demand deposits as well as its commercial loan and investment security portfolios in an attempt to improve its net interest margin. The Bank also intends to pursue more fees from the Mortgage Company and the Insurance Agency to offset potential drops in net interest margin.

Provision and Allowance for Loan Losses

The provision for loan losses was $65,000 lower in the first six months of 2002 than in the same period of 2001. This was lower due to a significant provision made in the second quarter of 2001 caused by higher net charge-offs a year ago. The allowance for loan losses decreased $52,000 from March 31, 2002 to June 30, 2002, but has increased $17,000 since the end of 2001. The allowance was 1.17% of total loans as of June 30, 2002, compared to 1.21% at March 31, 2002, and 1.21% at December 31, 2001. Charge-offs and recoveries of charged off loans for the six months ended June 30 were as follows:

The decrease in total charge-offs from 2001 to 2002 was primarily attributable to fewer commercial and mortgage loan charge-offs, offset by higher consumer loan charge-offs. In 2001, several commercial loans and one significant construction mortgage loan were written off as uncollectible. Indirect and credit card loans comprised the bulk of the charge-offs within consumer loans. As charge-offs, changes in the level of nonperforming loans, and changes within the composition of the loan portfolio occur throughout 2002, the provision and allowance for loan losses will be reviewed by the Bank's management and adjusted as necessary.

Noninterest Income

Total noninterest income increased $111,000 or 17% in the second quarter and $279,000 or 23% in the first six months of 2002 compared to the same periods in the prior year. Customer service fees increased due to a new program introduced to target customers who routinely have checks returned for non-sufficient funds. Gains on sales of mortgage loans increased in 2002 due to additional volume originated and sold in the current year compared to the prior year. The sale of one equity investment resulted in a non-recurring portfolio gain of $49,000 for the six months ended June 30, 2002.

Noninterest Expense

Total noninterest expense increased $286,000 or 16% in the second quarter of 2002 and $530,000 or 15% in the first six months of 2002 compared to 2001. Salaries and benefits rose due to the addition of several new employees as well as higher commissions paid to mortgage producers based on increased production. Approximately $110,000 of additional occupancy expense was incurred due to the write-off of fixed assets related to closing the Bank's Plainfield office. Bank management declined to renew its current lease agreement as the office (opened in 1996) has not grown to a level sufficient enough to be profitable. Professional services increased over the prior year due to collection efforts towards delinquent or bankrupt borrowers as well as higher legal fees resulting from litigation with two former employees of the Insurance Agency. Data processing increased in 2002 due to a new check imaging system installed in third quarter of 2001 as well as the implementation of internet banking in late 2001.

FINANCIAL CONDITION

Investment Securities

The investment securities portfolio increased approximately $1.2 million from December 31, 2001 to June 30, 2002. A mix of government agencies, municipals and mortgage-backed securities were purchased to replace called agency bonds, maturing municipal bonds, and sold corporate equities. The Bank's Investment Committee continues to monitor the portfolio and purchase securities when deemed prudent. Certain securities are also sold under agreements to repurchase and management plans to continue this practice as a low-cost source of funding. Investment securities also serve as a source of liquidity for deposit needs.

Loans

The loan portfolio has increased approximately $7.4 million from December 31, 2001 to June 30, 2002. Commercial and mortgage loans increased $6.3 million and $2.1 million, respectively, while consumer loans have dropped $1.0 million since December 31, 2001. Commercial loans have increased due to increased demand from local businesses and the addition of a new Senior Lender and another commercial loan officer to the Bank. Mortgage loans have increased due to construction loans and management's decision to retain some loans to offset current payoffs caused by heavy customer refinancing activity. Demand for consumer loans has been sluggish due to many uncertainties regarding the local and national economy. Bank management has also reduced its penchant for funding indirect installment loans. While management believes that future loan growth will be a challenge for the remainder of 2002, it is attempting to further penetrate its existing markets in hopes of growing its loan portfolio.

Information regarding impaired loans can be found in Note 2 to the consolidated financial statements included in this report. In addition to its review of the loan portfolio for impaired loans, management also monitors the various nonperforming loans. Nonperforming loans are comprised of: (1) loans accounted for on a nonaccrual basis; (2) loans, not included in nonaccrual loans, which are contractually past due 90 days or more as to interest or principal payments; and (3) loans, not included in nonaccrual or loans past due 90 days or more, which are considered troubled debt restructurings. The balances of these nonperforming loans as of the dates indicated were as follows:

Since December 31, 2001, nonaccrual loans have increased largely due to two commercial loans totaling $1,285,000 in which management believes the Bank holds sufficient collateral and does not anticipate a loss. Management is diligently monitoring these and other delinquent borrowers in an attempt to offset future possible charge-offs. Management also maintains a list of loans that are not classified as nonperforming loans but where some concern exists as to the borrowers' abilities to comply with the original loan terms. The total balance of these loans was $5,413,000 as of June 30, 2002, compared to $5,237,000 as of March 31, 2002, and $5,424,000 as of December 31, 2001. The allowance for loan losses as a percentage of nonperforming loans was 60% as of June 30, 2002, compared to 55% as of March 31, 2002, and 88% as of December 31, 2001.

Deposits and Other Funding Sources

Total deposits have increased approximately $4.2 million since the end of 2001. The increase was primarily due to $8.0 million in new brokered time deposits offset by $4.3 million in maturing local time deposits. Money market and savings accounts also increased slightly, offset by a reduction in interest-bearing checking accounts. Noninterest-bearing checking accounts have remained steady since December 2001. The balance of federal funds purchased decreased $0.4 million and repurchase agreements increased approximately $2.0 million since December 31, 2001 to fund new loan growth. Advances from the Federal Home Loan Bank ("FHLB") increased approximately $1.5 million for the six months ended June 30, 2002. The Bank obtained $11 million in new borrowings in 2002 which replaced approximately $9.5 million in maturing advances. The new advances are shorter in duration and carry a lower interest rate.

The Registrant's management plans to continue to emphasize growth of deposits obtained from the Bank's local market areas. If local market deposit growth is insufficient to support loan growth and other operating needs in 2002, management anticipates that it will continue to use brokered time deposits and advances from the FHLB to supplement the core deposit growth.

Shareholders' Equity

Total shareholders' equity increased $464,000 since the end of 2001. Equity growth resulted from retained earnings and proceeds from the sale of the Registrant's stock, plus an increase in accumulated other comprehensive income, offset by cash and stock dividends paid to shareholders. Total shareholders' equity as a percentage of assets was 9.12% as of June 30, 2002, compared to 9.24% as of December 31, 2001. The decrease in this ratio resulted from growth in shareholders' equity at a lower rate than growth in total assets. Based on risk-based capital guidelines established by the Bank's regulators, the Registrant's risk-based capital was categorized as "well capitalized" at June 30, 2002.

Capital Resources

The Registrant's management does not currently have any plans that will utilize significant amounts of the Registrant's capital. Management believes that the current level of capital is adequate to take advantage of potential opportunities that may arise for the Registrant or the Bank.

Liquidity and Rate Sensitivity

Cash and cash equivalents decreased $0.9 million since the end of 2001. Management believes that the current level of liquidity is sufficient to meet the Bank's normal operating needs. This belief is based upon the availability of deposit growth from both the local and national markets, maturities of securities, normal loan repayments, income retention, federal funds which can be purchased from correspondent banks, and advances available from the FHLB. The Bank also has a secured line of credit available from the Federal Reserve Bank. The Bank does not anticipate that the secured line of credit will be used for normal operating needs, but could be used for liquidity purposes in special circumstances.

The Bank's sensitivity to changes in interest rates is monitored by the Asset & Liability Management Committee (the "Committee"). The Committee uses a simulation model to subject rate-sensitive assets and liabilities to interest rate shocks. Assets and liabilities are subject to an immediate 200 basis point shock and the effect on net income and shareholders' equity is measured. The rate shock computation as of June 30, 2002 caused an insignificant change to net income if rates increased 200 basis points and decreased net income 15% if rates decreased 175 basis points. As of June 30, 2002, the federal funds rate was 1.75% and the Committee believes the likelihood of this rate being reduced 175 basis points to zero is distinctly remote. The market value of shareholders' equity decreased between 2% and 3% of total equity in both the upward and downward rate shock scenarios. The Committee continues to monitor the effect of changes in interest rates upon the Registrant's financial condition.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

The information concerning quantitative and qualitative disclosures about market risk contained under the caption "Liquidity and Interest Rate Risk" on pages 30 and 31 of the Registrant's Annual Report to Shareholders for the year ended December 31, 2001 is here incorporated by reference. Such Annual Report was previously filed as Exhibit 13 to the Corporation's Annual Report on Form 10-K for the year ended December 31, 2001.

The Registrant's management does not believe that there has been a material change in the nature or categories of the Registrant's primary market risk exposures, or the particular markets that present the primary risk of loss to the Registrant. As of the date of this report, the Registrant's management does not know of or expect there to be any material change in the general nature of its primary market risk exposure in the near term. The methods by which the Registrant manages its primary market risk exposures, as described in the sections of its Annual Report to Shareholders incorporated by reference in response to this item, have not changed materially since the end of 2001. As of the date of this report, the Registrant's management does not expect to make material changes in those methods in the near term. The Registrant may change those methods in the future to adapt to changes in circumstances or to implement new techniques.

The Registrant's market risk exposure is mainly comprised of its vulnerability to interest rate risk. Prevailing interest rates and interest rate relationships are primarily determined by market factors that are beyond the Registrant's control. All information provided in response to this item consists of forward-looking statements. Reference is made to the section captioned "Forward-Looking Statements" in Item 2 of this report for a discussion of the limitations on the Registrant's responsibility for such statements. In this discussion, "near term" means a period of one year following the date of the most recent balance sheet contained in this report.

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

None.

Item 2.  Changes in Securities and Use of Proceeds

On April 25, 2002, the Registrant issued 991 shares of common stock to the directors of the Registrant pursuant to the Directors' Stock Purchase Plan for an aggregate cash price of $14,000. The Registrant relied on the exemption contained in Section 4(6) of the Securities Act of 1933 in connection with this sale.

Item 3.  Defaults Upon Senior Securities

None.

Item 4.  Submission of Matters to a Vote of Security Holders

On April 29, 2002, the Annual Meeting of Shareholders of the Registrant was held. The following directors were elected by the shareholders to serve until the Annual Meeting for the respective term indicated:

Directors William F. Cutler, Jr., Paul L. Johnson, and Andrew W. Zamiara continue their term through the 2003 Annual Meeting. Directors Frank G. Berris, Lawrence D. Bradford, Lewis G. Emmons, and Stuart Goodfellow continue their term until the 2004 Annual Meeting.

At the 2002 Annual Meeting, the shareholders also approved the Employee Stock Purchase Plan. A total of 1,159,218 shares were voted for the proposal; 28,097 shares were voted against the proposal; and 2,782 shares abstained from voting. No broker non-votes were received on this proposal.

Item 5.  Other Information

None.

Item 6.  Exhibits and Reports on Form 8-K