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 October 31, 2002, the Registrant had 1,551,204 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 September 30, 2002 and December 31, 2001, the Consolidated Statements of Income for the three- and nine-month periods ended September 30, 2002 and September 30, 2001, the Consolidated Statements of Changes in Shareholders' Equity for the nine-month periods ended September 30, 2002 and September 30, 2001, and the Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2002 and September 30, 2001. Operating results for the nine months ended September 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 2,958 shares of common stock were issued to the Registrant's Board of Directors for a cash price of $43,000 under the terms of the Directors' Stock Purchase Plan in the first three quarters of 2002. A total of 6,288 shares of common stock were issued to shareholders for a cash price of $71,000 under the Dividend Reinvestment and Supplemental Purchase Plan. Approximately 510 shares of common stock were released under the Employee Stock Ownership Plan.

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.

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 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 Mortgage Company of Michigan (the "Mortgage Company"), 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 $26,000 or 7% in the third quarter of 2002 compared to the same period in 2001. Net income for the first nine months of 2002 increased $61,000, or 6% from the same period in the prior year. The increase in net income was due to increased net interest income and increased noninterest income, offset by a higher provision for the allowance for loan losses and higher 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. Also, the rates paid on deposits and other funding sources fell faster than the yields earned on loans and securities. Higher customer service fees, insurance commissions, and gains from the sale of loans and securities fueled growth in noninterest income in 2002. The higher provision for loan losses was primarily due to rising levels of nonperforming and substandard loans. 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 nine months ended September 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 nine months of 2002, compared to 0.71% for the same period in 2001. Return on average shareholders' equity was 8.04% for the first nine months of 2002, compared to 7.83% for the comparable period of 2001.

Dividends

Cash dividends of $263,000, or $0.17 per common share were declared in the third quarter of 2002, compared to $0.16 per common share in 2001. The cash dividends paid in the first nine months of 2002 were $774,000 or $0.50 per common share which was the same amount paid per common share in 2001. The cash dividend payout percentage was 69% for the first nine 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 nine-month periods ended September 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 $462,000 in the first nine months of 2002 compared to the same period in 2001. This is primarily because the Bank's interest-bearing liabilities have repriced downward faster than the Bank's interest-earning assets. The Bank has also experienced a change in the deposit mix as more customers are shifting from high rate time deposits to demand deposits. A slight increase in the volume of checking accounts and new securities purchased also helped interest margin over the prior year.

The average balance of loans has remained consistent in the nine months ended September 30, 2002 compared to 2001. Additionally, the lower interest rate environment has greatly reduced the yield earned on all new fixed rate loans originated in 2002 and certain variable rate loans indexed to prime or the U.S. Treasury note rates. This has caused interest income from loans to fall approximately $1.5 million for the nine months ended September 30, 2002, compared to the period a year ago. The average balance of investment securities grew $5.5 million since September 2001, offset by lower earning yields thereby causing interest income to increase $168,000 from the period a year ago. The Bank was primarily a purchaser of federal funds in the first nine months of 2002 as compared to 2001, when the Bank was selling federal funds. This caused a decrease of $62,000 in income from other interest-earning assets in 2002 versus 2001.

The mix of deposits has changed from September 2001 to September 2002 as interest-bearing demand deposits have increased $7.4 million, savings deposits have increased $0.6 million and time deposits have dropped $7.0
million. This change in the mix allowed the Bank to reduce interest expense by $121,000. In addition, the lower rates paid on all deposit types have caused interest expense to decrease approximately $1.4 million from the period a year ago. A $3.1 million decrease in average advances from the Federal Home Loan Bank coupled with lower rates paid on new advances caused the Bank's interest expense to decrease $399,000 in 2002.

Net interest income spread (from Table 1) was 3.86% for the first nine months of 2002, compared to 3.46% for the first nine months of 2001. The net interest income spread was 3.48% for the twelve months ended December 31, 2001; 3.74% for the three months ended March 31, 2002; and 3.80% for the six months ended June 30, 2002. The average yield on interest-earning assets was 7.62% at September 30, 2002, compared to 8.77% one year ago. The average rate on interest-bearing liabilities was 3.76% at September 30, 2002, compared to 5.31% one year ago. The improvement over 2001 was primarily due to reduced rates paid on interest-bearing liabilities offset by the reduced yields earned on interest-earning assets as well as a change in the mix of deposits. Management continues to emphasize growth of transaction accounts to replace high rate time deposits and other borrowings.

Provision and Allowance for Loan Losses

The provision for loan losses was $104,000 higher in the three months ended and $35,000 higher in the nine months ended September 30, 2002 compared to the same periods of 2001. This increased provision was due to rising levels of nonperforming and other substandard commercial loans. The allowance was 1.17% of total loans as of September 30, 2002, compared to 1.17% at June 30, 2002, 1.21% at March 31, 2002, and 1.21% at December 31, 2001.

Charge-offs and recoveries of charged-off loans for the nine months ended September 30 were as follows:

The slight decrease in year-to-date charge-offs from 2001 to 2002 was primarily attributable to fewer commercial and mortgage loan charge-offs, offset by higher consumer loan charge-offs. For the nine months ended September 30, 2002, indirect loans comprised 34% and credit cards comprised 16% of the charge-offs within consumer loans. Management has scaled back its indirect lending in 2002 and also entered into an agreement to sell its credit card portfolio by year-end. Management has also reduced its factored receivable financing which produced significant commercial loan charge-offs in 2001. 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 $286,000 or 46% in the third quarter and $565,000 or 31% in the first nine months of 2002 compared to the same periods in 2001. Customer service fees increased largely from a new program targeting customers who routinely have checks returned for non-sufficient funds. Insurance commissions increased slightly due to additional sales of annuity products from our brokerage area. Gains received from the sale of mortgage loans increased significantly since 2001 due to tremendous volume originated and sold in 2002. Much of the mortgage loans pertain to heavy refinancing activity driven by market forces. The sale of one equity investment resulted in a nonrecurring portfolio gain of $49,000 for the nine months ended September 30, 2002.

Noninterest Expense

Total noninterest expense increased $384,000 or 21% in the third quarter of 2002 and $914,000 or 17% in the first nine 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 and insurance producers based on increased production. Approximately $200,000 of additional occupancy expense was incurred for the nine months ended September 30, 2002 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) had 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 expense increased in 2002 due to a new check imaging system installed in 2001 as well as t he implementation of internet banking in 2001. Other noninterest expense for 2002 also includes higher expenses over 2001 for items associated with the foreclosure and maintenance of other real estate owned.

FINANCIAL CONDITION

Securities

The securities portfolio increased approximately $1.6 million from December 31, 2001 to September 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. Securities also serve as a source of liquidity for deposit needs.

Loans

The loan portfolio has increased over $17 million from December 31, 2001 to September 30, 2002. Commercial and mortgage loans increased $11.9 million and $6.2 million, respectively, while consumer loans have dropped $1.0 million since the end of 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 significantly more construction loans in the portfolio at September 30, 2002. Bank management anticipates that mortgage loans will decrease in the fourth quarter as over $5.5 million of mortgage loans are being held for sale. Demand for consumer loans has been sluggish due to many uncertainties regarding the local and national economy. Bank management has reduced its penchant for funding indirect installment loans due to credit quality concerns. The Bank has also entered into an agreement to sell its entire credit card portfolio ($522,000) in the fourth quar ter of 2002. A small gain on the sale is expected.

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 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:

In the third quarter of 2002, management adopted a new policy which placed all loans contractually past due 90 days or more into a nonaccrual status. At September 30, 2002 nonperforming loans included one large commercial borrower for $1.4 million 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 $5,288,000 as of September 30, 2002, compared to $5,413,000 at June 30, 2002, $5,237,000 at March 31, 2002, and $5,424,000 at December 31, 2001. The allowance for loan losses as a percentage of nonperforming loans was 48% as of September 30, 2002, compared to 60% at June 30, 2002, 55% at March 31, 2002, and 88% at Decem ber 31, 2001.

Deposits and Other Funding Sources

Total deposits have increased approximately $8.4 million since the end of 2001. The increase was primarily due to $15.6 million in new brokered time deposits offset by $9 million in maturing local time deposits. Interest-bearing checking, money market and savings accounts also increased slightly. Noninterest-bearing checking accounts have remained steady since December 2001. The balance of federal funds purchased increased $4.6 million, offset by a lower balance of securities sold under agreements to repurchase since December 31, 2001. Advances from the Federal Home Loan Bank ("FHLB") increased approximately $3.8 million for the nine months ended September 30, 2002. The Bank obtained $16 million in new borrowings in 2002 which replaced approximately $12.2 million in maturing advances. The new advances are shorter in duration and carry a lower interest rate.

Bank management continues to emphasize growth of local deposits through its non-interest bearing checking accounts and recently enhanced money market account. 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 federal funds, advances from the FHLB, and brokered time deposits to supplement its core deposit growth.

Shareholders' Equity and Capital Resources

Total shareholders' equity increased $0.9 million 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 8.89% as of September 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 September 30, 2002.

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 $0.6 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 deposits 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 subjected to an immediate 200 basis point shock and the effect on net income and shareholders' equity is measured. The rate shock computation as of September 30, 2002 increased net income 1% if rates increased 200 basis points and decreased net income 15% if rates decreased 175 basis points. As of September 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 3% and 4% 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.

On November 6, 2002, the Federal Reserve Bank's Open Market Committee (the "FOMC") cut the discount rate 50 basis points citing concerns over growing uncertainty about the economy. The FOMC noted heightened geopolitical risk, stalled consumer spending and concerns over industrial production and unemployment levels. Management will attempt to offset the impact to interest income by lowering rates offered on its deposits relative to the Bank's market area. The Bank also intends to grow transaction accounts that are less rate sensitive than time deposits.

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.

Item 4.  Controls and Procedures.

Within 90 days prior to the date of filing this report, an evaluation was performed under the supervision and with the participation of the Registrant's management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Registrant's disclosure controls and procedures. Based on that evaluation, the Registrant's management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Registrant's disclosure controls and procedures were effective as of the time of such evaluation. There have been no significant changes in the Registrant's internal controls or in other factors that could significantly affect internal controls subsequent to the time of such evaluation.

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

There are no material pending legal proceedings to which the Registrant or the Bank is a party to or to which any of their property is subject, except for proceedings which arose in the ordinary course of business. In the opinion of management, pending or current legal proceedings will not have a material effect on the consolidated financial condition of the Registrant.

Item 2.  Changes in Securities and Use of Proceeds

On August 12, 2002, the Registrant issued 962 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

None.

Item 5.  Other Information

None.

Item 6.  Exhibits and Reports on Form 8-K