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        

Indicate by checkmark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes                   No     X   

As of April 30, 2004, the Registrant had outstanding 1,565,383 shares of common stock.

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 INTERIM 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 Insurance Agencies, Inc. (the "Insurance Agency"), and ChoiceOne Mortgage Company of Michigan, Inc. (the "Mortgage Company"). 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 March 31, 2004 and December 31, 2003, and the Consolidated Statements of Income, Consolidated Statements of Changes in Shareholders' Equity, and Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2004 and March 31, 2003. Operating results for the three months ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.

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, 2003.

Stock Based Compensation
Employee compensation expense under the Registrant's stock option plan is reported if options are granted below market price at the grant date. Pro forma disclosures of net income and earnings per share are shown using the fair value method to measure expense for options granted using an option pricing model to estimate the fair value.

The following pro forma information presents net income and earnings per share for the three months ended March 31, 2004 and 2003 had the fair value method been used to measure compensation cost for stock option plans. No compensation cost was recognized for stock options in 2004 and 2003.

The pro forma effects are computed using an option pricing model and the following weighted average assumptions as of grant date:

In future periods, the pro forma effect of not applying the fair value method may increase if additional options are granted.

Stock Transactions
A total of 962 shares of common stock were issued to the Registrant's Board of Directors for a cash price of $16,000 under the terms of the Directors' Stock Purchase Plan in the first quarter of 2004. A total of 2,022 shares of common stock were issued to shareholders for a cash price of $34,000 under the Dividend Reinvestment and Supplemental Purchase Plan in the quarter ended March 31, 2004. A total of 617 shares were issued to employees for a cash price of $9,000 under the Employee Stock Purchase Plan for the quarter ended March 31, 2004. A total of 1,633 shares were repurchased from shareholders at a cash price of $29,000 in the first quarter of 2004.

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

NOTE 2 - ALLOWANCE FOR LOAN LOSSES

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

Information regarding impaired loans follows:

NOTE 3 - EARNINGS PER SHARE

Earnings per share are based on the weighted average number of shares outstanding during the period. A computation of 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") and its direct and indirect wholly owned subsidiaries, ChoiceOne Bank (the "Bank"), ChoiceOne Insurance Agencies, Inc. (the "Insurance Agency"), and ChoiceOne Mortgage Company of Michigan, Inc. (the "Mortgage Company").

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 laws and regulations; changes in tax laws; changes in prices, levies, and assessments; the impact of technological advances; governmental and regulatory policy changes; the outcomes of pending and future litigation and contingencies; trends in customer behavior as well as their ability to repay loans; and changes in the national and local economies. In addition, events relating to the ongoing war on terrorism, other potential terrorist acts, and military actions including the war in Iraq have created significant global economic and political uncertainties that may have material and adverse effects on financial markets, the economy, and demand for financial services and products. These are representative of the risk factors that could cause a difference between an ultimate actua l outcome and a preceding forward-looking statement.

RESULTS OF OPERATIONS

Summary
Net income increased $6,000 or 1% in the first quarter of 2004 compared to the same period in 2003. The increase in net income was due to a decreased provision for loan losses and decreased noninterest expenses, offset by lower net interest income and noninterest income.

The lower provision for loan losses was primarily due to a lower level of nonperforming loans during the first quarter of 2004 compared to 2003. Noninterest expense decreased due to the closure of the Bank's Great Day office in Sparta in August 2003 as well as the Insurance Agency's sale of the Grand Rapids division in January 2003. Lower legal fees from fewer loan collection matters also propelled higher net income for the quarter ended March 31, 2004. A tremendous amount of commercial and consumer loans continue to reprice at significantly lower yields which has negatively impacted net interest income. The Bank's cost of funds improved as time deposits and advances from the Federal Home Loan Bank repriced downward, but to a lesser extent than the lowered interest income. Gains from the sale of loans fell substantially from the levels achieved a year ago. Mortgage servicing fee income increased due to a slowdown in the mortgage refinancing environment.

The return on average assets was 0.95% for the first three months of 2004, compared to 0.97% for the period a year ago. The return on average shareholders' equity was 9.84% for the first quarter of 2004, compared to 10.37% for the first quarter of 2003.

Dividends
Cash dividends of $265,000, or $0.17 per common share were declared in the first quarter of 2004, which is the same per share amount declared in the first quarter of 2003. The cash dividend payout percentage was 52% for the first three months of 2004, compared to 52% in the same period a year ago.

Interest Income and Expense
Tables 1 and 2 on the following pages provide information regarding interest income and expense for the three-month periods ended March 31, 2004 and 2003, 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.

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 decreased $56,000 in the first three months of 2004 compared to the same period in 2003. This is primarily because the Bank's interest earning assets have repriced further downward than the Bank's interest-bearing liabilities.

The average balance of loans decreased $8.5 million in the three months ended March 31, 2004 compared to 2003. Loan refinancing and repricing in addition to portfolio runoff caused interest income on loans to fall $478,000 for the quarter ended March 31, 2004, compared to the period a year ago. To compensate for the reduction in the loan portfolio, additional securities were purchased in the 12 months since March 31, 2003. The average balance of securities grew $15.3 million, offsetting lower yields and thereby causing interest income to increase $128,000 over the first quarter of 2003.

Payoffs of several high rate advances from the Federal Home Loan Bank in the 12 months since March 31, 2003 greatly reduced interest expense by $136,000 in the first quarter of 2004 versus first quarter of 2003. Lower rates paid on new advances more than offset the $7.4 million increase in average advances outstanding. Maturities of high rate time deposits in the 12 months since March 31, 2003 also lowered interest expense by $191,000 in the first three months of 2004 compared to 2003. The average balance of time deposits dropped $15.4 million and the average rate fell 35 basis points. A $13.2 million increase in average interest-bearing demand deposits and savings deposits resulted in $29,000 of additional interest expense for the quarter ended March 31, 2004. Interest expense on other borrowed funds increased by $3,000 due to slightly higher rates paid on sweep repurchase agreements during 2004.

Net interest income spread was 3.59% (shown in Table 1) for the first three months of 2004, compared to 3.73% for the first three months of 2003 and 3.71% for the twelve months ended December 31, 2003. The average yield received on interest-earning assets was down 90 basis points to 5.78% at March 31, 2004, and the average rate paid on interest-bearing liabilities was down 76 basis points to 2.19% at March 31, 2004. High yielding loans have paid off, matured or been refinanced at significantly lower rates. The Bank has not been able to match this loss of interest income by lowering rates for demand, savings and time deposits. It has prepaid or replaced some advances from the Federal Home Loan Bank with new advances at much lower rates. Management continues to emphasize growth of its noninterest-bearing demand and interest-bearing demand deposits to lower its future cost of funds.

Provision and Allowance for Loan Losses
The allowance for loan losses decreased $261,000 from December 31, 2003 to March 31, 2004. The provision for loan losses was $90,000 lower in the first three months of 2004 compared to 2003 due to a sizable decrease in nonaccrual loans during the past twelve months. The allowance was 1.05% of total loans at March 31, 2004 compared to 1.21% at December 31, 2003. Charge-offs and recoveries for respective loan categories for the three months ended March 31 were as follows:

The increase in total charge-offs from 2003 to 2004 was primarily attributable to four large commercial substandard credits totaling $322,000. These loans were impaired at the end of 2003 and each loss was 100% specifically reserved for, except one loan for which 30% had been reserved. Certain events occurring during the first quarter of 2004 justified the timing of the charge-off of the specific reserve associated with each loan. Consumer loan charge-offs decreased significantly in 2004 versus 2003 reflecting management's progress in underwriting new loans and delinquent loan collection efforts. As charge-offs, changes in the level of nonperforming loans, and changes within the composition of the loan portfolio occur throughout 2004, the provision and allowance for loan losses will be reviewed by the Bank's management and adjusted as necessary.

Noninterest Income
Total noninterest income decreased $115,000 or 14% in the first quarter of 2004 compared to the same period in 2003. Gains on sales of loans were down $109,000 due to slower mortgage refinancing activity at the Mortgage Company. The sale of the Insurance Agency's Grand Rapids division reduced our insurance commissions in 2004, compared to 2003. Offsetting these decreases was an increase in mortgage servicing fees during 2004. Servicing fee income in 2003 was reduced by accelerated amortization and impairment of mortgage servicing rights driven by the heavy mortgage refinancing environment. A total of $3.5 million of securities were sold during the first quarter of 2004 for a non-recurring portfolio gain of $29,000 whereas the Registrant did not sell any securities in the first quarter of 2003.

Noninterest Expense
Total noninterest expense decreased $103,000 or 5% in the first quarter of 2004 compared to the first quarter of 2003. Salaries and benefits were lower in 2004 due to fewer mortgage commissions paid, which was offset by higher employee health care costs. Occupancy expense was also lower due to the closure of the Bank's Sparta Great Day office as well as the sale of the Grand Rapids division of the Insurance Agency in 2003. Professional fees were lower during the first quarter of 2004 due to decreased legal fees related to collection matters caused by fewer delinquent and substandard loans.

FINANCIAL CONDITION

Securities
The securities portfolio increased $2.3 million from December 31, 2003 to March 31, 2004. A mix of agency bonds, mortgage-backed securities, and municipal bonds were purchased since loan demand was slow, deposits grew and the Bank did not want to sell federal funds. 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. During the first quarter, management also pledged securities to the Federal Home Loan Bank as collateral for potential borrowings. This provided the Bank additional borrowing capacity and reduced the amount of federal funds purchased from year-end 2003. Securities also serve as a source of liquidity for funding loan demand.

Loans
The loan portfolio (excluding loans held for sale) grew $400,000 during the first quarter of 2004. Commercial and consumer loans increased $200,000 and $600,000, respectively. Commercial loans increased slightly due to higher demand from local businesses. Consumer loans increased due to a home equity loan special promoted during the first quarter of 2004. Mortgage loans decreased $400,000 as a result of lower construction loans in the portfolio. Management continues to sell conforming mortgages to secondary market investors; however, activity at the Mortgage Company has slowed in 2004 due to rising long-term interest rates. Management anticipates that future loan demand will increase due to a general improvement in local and national economic conditions.

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 were as follows:

The allowance for loan losses as a percentage of nonperforming loans was 105% at March 31, 2004, compared to 99% at December 31, 2003. Nonaccrual loans are comprised of $1.2 million of commercial loans, $217,000 of residential mortgages, and $124,000 of consumer loans. Impaired loans are evaluated on an individual basis and specific allocations are made for loans where collateral is insufficient to support the outstanding principal balances of these loans. Management further believes that the general allocation within the allowance for loan losses is sufficient based on the Bank's loan grading system, past due trends and historical charge-off percentages.

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 $8,114,000 as of March 31, 2004, compared to $8,841,000 as of December 31, 2003.

Deposits and Other Funding Sources
Total deposits have increased approximately $4.0 million since December 31, 2003. Demand deposits grew $2.3 million, savings deposits grew $0.4 million and time deposits rose $1.3 million. The Bank's growth in high-yielding money market accounts offset lower noninterest-bearing demand deposit balances. New brokered time deposits were acquired to offset some of the matured or non-renewed local time deposits. Advances from the Federal Home Loan Bank increased $3.5 million to reduce the amount of federal funds purchased at the end of 2003. Federal funds purchased decreased $5.8 million since December 31, 2003.

Shareholders' Equity
Total shareholders' equity increased $454,000 from the year ended December 31, 2003. Growth resulted from current year income, proceeds from the sale of the Registrant's stock, changes in the unrealized gain on securities, offset by cash dividends paid to shareholders and repurchases of stock. Total shareholders' equity as a percentage of assets was 9.69% as of March 31, 2004, compared to 9.55% as of December 31, 2003. The increase in this ratio resulted from growth in shareholders' equity during the quarter. Based on risk-based capital guidelines established by the Bank's regulators, the Registrant's risk-based capital was categorized as "well capitalized" at March 31, 2004.

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
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 Federal Home Loan Bank. 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 "ALCO Committee"). The ALCO 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 March 31, 2004 increased net income 7% if rates increased 200 basis points and decreased net income 9% if rates decreased 100 basis points. The market value of shareholders' equity decreased 11% when rates were shocked 200 points upward and 5% if rates were shocked 100 points downward. The ALCO 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 32 and 33 of the Registrant's Annual Report to Shareholders for the year ended December 31, 2003 is here incorporated by reference. Such Annual Report was previously filed as Exhibit 13 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2003.

Management does not believe that there has been a material change in the nature or categories of the primary market risk exposures, or the particular markets that present the primary risk of loss to the Bank. As of the date of this report, 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 Bank 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 2003. As of the date of this report, 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 Bank'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 Bank'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.

An evaluation was performed under the supervision and with the participation of the Registrant's management, including the Chief Executive Officer and principal financial officer, of the effectiveness of the design and operation of the Registrant's disclosure controls and procedures. Based on and as of the time of that evaluation, the Registrant's management, including the Chief Executive Officer and principal financial officer, concluded that the Registrant's disclosure controls and procedures were effective as of the end of the period covered by this report. There was no change in the Registrant's internal control over financial reporting that occurred during the three months ended March 31, 2004 that has materially affected, or that is reasonably likely to materially affect, the Registrant's internal control over financial reporting.

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, Use of Proceeds and Issuer Purchases of Equity Securities.

On January 28, 2004, the Registrant issued 962 shares of common stock, without par value, to the directors of the Registrant pursuant to the Directors' Stock Purchase Plan for an aggregate cash price of $16,000. The Registrant relied on the exemption contained in Section 4(6) of the Securities Act of 1933 in connection with this sale.

ISSUER PURCHASES OF EQUITY SECURITIES

(1)  The repurchase plan was adopted and announced on July 15, 1998. The plan authorized the repurchase of up to 50,000 shares. There is no stated expiration date. All shares purchased by the Registrant during the three months ended March 31, 2004 were made as open-market transactions.

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.

          1.          Exhibits. The following exhibits are filed or incorporated by reference as part of this report:

          2.          Reports on Form 8-K. The following reports on Form 8-K were filed during the period covered by this report:

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

INDEX TO EXHIBITS

The following exhibits are filed or incorporated by reference as part of this report: