ChoiceOne Financial Services (COFS) 10-Q 2000 Q3 Quarterly report

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

[ X ]	Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended September 30, 2000
[   ]	Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period from               to

Commission File Number:1-9202

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

Michigan (State or Other Jurisdiction of Incorporation or Organization)	38-2659066 (I.R.S. Employer Identification No.)
109 East Division Sparta, Michigan (Address of Principal Executive Offices)	49345 (Zip Code)
(616) 887-7366 (Registrant's Telephone Number, Including Area Code)

Indicated by check mark 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, 2000, the Registrant had outstanding 1,385,435 shares of common stock.

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

			Page Number
PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements (Unaudited)
		Consolidated Balance Sheets	3
		Consolidated Statements of Income and Comprehensive Income	4
		Consolidated Statements of Changes in Shareholders' Equity	5
		Consolidated Statements of Cash Flows	6
		Notes to Consolidated Financial Statements	7-11
	Item 2.	Management's Discussion and Analysis of Financial
		Condition and Results of Operations	12-23
	Item 3.	Quantitative and Qualitative Disclosures About
		Market Risk	23
PART II. OTHER INFORMATION
	Item 2.	Changes in Securities and Use of Proceeds	24
	Item 6.	Exhibits and Reports on Form 8-K	24
SIGNATURES			25

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PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements.

ChoiceOne Financial Services, Inc.

CONSOLIDATED BALANCE SHEETS

		September 30, 2000		December 31, 1999
		(Unaudited)
Assets
Cash and due from banks	$	4,925,000	$	3,998,000
Securities available for sale		14,566,000		15,243,000
Loans, net		171,654,000		166,073,000
Premises and equipment, net		5,104,000		4,914,000
Other assets		3,156,000		2,879,000
Total assets	$	199,405,000	$	193,107,000
Liabilities
Deposits - noninterest bearing	$	13,501,000	$	14,701,000
Deposits - interest bearing		120,991,000		112,852,000
Federal funds purchased and repurchase agreements		7,977,000		9,527,000
Other liabilities		2,452,000		2,140,000
Federal Home Loan Bank advances		36,842,000		36,999,000
Total liabilities		181,763,000		176,219,000
Shareholders' Equity
Preferred stock; shares authorized: 100,000; shares
outstanding: none		--		--
Common stock; shares authorized: 4,000,000; shares
outstanding: 1,386,239 at September 30, 2000 and
1,382,989 at December 31, 1999		13,332,000		13,264,000
Unallocated shares held by 401(k) and employee
stock ownership plan		(91,000	)	--
Retained earnings		4,398,000		3,677,000
Accumulated other comprehensive income		3,000		(53,000	)
Total shareholders' equity		17,642,000		16,888,000
Total liabilities and shareholders' equity	$	199,405,000	$	193,107,000

See accompanying notes to consolidated financial statements.

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ChoiceOne Financial Services, Inc.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)

		Three Months Ended September 30,				Nine Months Ended September 30,
		2000		1999		2000		1999
Interest income
Loans, including fees	$	4,104,000	$	3,491,000	$	11,907,000	$	9,979,000
Securities
Taxable		114,000		155,000		360,000		467,000
Nontaxable		105,000		93,000		293,000		292,000
Other		1,000		--		2,000		1,000
Total interest income		4,324,000		3,739,000		12,562,000		10,739,000
Interest expense
Deposits		1,575,000		1,207,000		4,404,000		3,571,000
Short-term borrowings		88,000		116,000		329,000		233,000
Federal Home Loan Bank
Advances		610,000		421,000		1,792,000		1,227,000
Long-term debt		3,000		5,000		11,000		27,000
Total interest expense		2,276,000		1,749,000		6,536,000		5,058,000
Net interest income		2,048,000		1,990,000		6,026,000		5,681,000
Provision for loan losses		225,000		130,000		550,000		350,000
Net interest income after
provision for loan losses		1,823,000		1,860,000		5,476,000		5,331,000
Noninterest income
Customer service fees		153,000		191,000		439,000		447,000
Gains on sales of securities		--		4,000		--		4,000
Insurance commission income		340,000		241,000		946,000		696,000
Mortgage loan sales
and servicing		46,000		25,000		119,000		163,000
Other income		69,000		12,000		209,000		130,000
Total noninterest income		608,000		473,000		1,713,000		1,440,000
Noninterest expense
Salaries and benefits		864,000		800,000		2,517,000		2,322,000
Occupancy expense		346,000		338,000		980,000		907,000
Computer service expense		46,000		48,000		138,000		140,000
Other expense		455,000		436,000		1,446,000		1,304,000
Total noninterest expense		1,711,000		1,622,000		5,081,000		4,673,000
Income before income tax		720,000		711,000		2,108,000		2,098,000
Income tax expense		233,000		224,000		655,000		655,000
Net income	$	487,000	$	487,000	$	1,453,000	$	1,443,000
Comprehensive income	$	573,000	$	450,000	$	1,509,000	$	1,186,000
Basic and diluted earnings
per share	$	.35	$	.35	$	1.05	$	1.04

See accompanying notes to consolidated financial statements.

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ChoiceOne Financial Services, Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)

		Common Stock		Unallocated Shares			Retained Earnings		Accumulated Other Comprehensive Income			Total
Balance, January 1, 1999	$	11,824,000	$	--		$	4,070,000	$	247,000		$	16,141,000
Comprehensive income
Net income							1,443,000					1,443,000
Change in unrealized
gains and losses, net
of taxes and
reclassification
adjustments									(257,000	)		(257,000	)
Total comprehensive
income												1,186,000
5% stock dividend paid in
June 1999		1,430,000					(1,436,000	)				(6,000	)
607 shares of stock
repurchased for employee
benefit plans, stock
dividends, and other		(16,000	)									(16,000	)
4,807 shares of stock issued
to employee benefit plans
and other		125,000										125,000
Cash dividends							(677,000	)				(677,000	)
Balance, September 30, 1999	$	13,363,000	$	--		$	3,400,000	$	(10,000	)	$	16,753,000
Balance, January 1, 2000	$	13,264,000	$	--		$	3,677,000	$	(53,000	)	$	16,888,000
Comprehensive income
Net income							1,453,000					1,453,000
Change in unrealized
gains and losses, net									56,000			56,000
Total comprehensive
income												1,509,000
Five-for-four stock split paid
in May 2000		(4,000	)									(4,000	)
3,063 shares of stock
repurchased for employee
benefit plans, stock
dividends, and other		(58,000	)									(58,000	)
5,319 shares of stock issued
to employee benefit plans
and other		130,000										130,000
3,700 shares of stock
purchased by 401(k) and
employee stock ownership
plan				(91,000	)							(91,000	)
Cash dividends							(732,000	)				(732,000	)
Balance, September 30, 2000	$	13,332,000	$	(91,000	)	$	4,398,000	$	3,000		$	17,642,000

See accompanying notes to consolidated financial statements.

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ChoiceOne Financial Services, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

		Nine Months Ended September 30,
		2000			1999
Cash flows from operating activities
Net income	$	1,453,000		$	1,443,000
Reconciling items:
Gains on sales of securities		--			(4,000	)
Net amortization on securities		34,000			105,000
Net gain on sales of loans		(69,000	)		(88,000	)
Loans originated for sale		(4,813,000	)		(5,850,000	)
Proceeds from loan sales		4,414,000			7,262,000
Provision for loan losses		550,000			350,000
Depreciation		516,000			481,000
Other non-cash charges and credits		91,000			(23,000	)
Deferred income tax expense/(benefit)		93,000			(23,000	)
Changes in assets and liabilities:
Interest receivable and other assets		(454,000	)		(176,000	)
Interest payable and other liabilities		349,000			53,000
Net cash provided by operating activities		2,164,000			3,530,000
Cash flows from investing activities
Securities available for sale:
Purchases		(1,115,000	)		(1,405,000	)
Sales proceeds		--			270,000
Principal payments		1,857,000			3,400,000
Net change in loans		(5,686,000	)		(19,952,000	)
Loans sold		--			892,000
Purchase of insurance agency		(27,000	)		(74,000	)
Premises and equipment expenditures, net		(706,000	)		(994,000	)
Net cash used in investing activities		(5,677,000	)		(17,863,000	)
Cash flows from financing activities
Net change in deposits		6,939,000			4,091,000
Net change in short-term borrowings		(1,550,000	)		8,447,000
Proceeds from Federal Home Loan Bank advances		5,000,000			3,000,000
Payments on Federal Home Loan Bank advances		(5,157,000	)		(1,024,000	)
Payments on long-term debt		(37,000	)		(346,000	)
Issuance of common stock		130,000			125,000
Repurchase of common stock		(150,000	)		(16,000	)
Cash dividends and fractional shares from stock
dividends		(735,000	)		(683,000	)
Net cash provided by financing activities		4,440,000			13,594,000
Net change in cash and cash equivalents		927,000			(739,000	)
Beginning cash and cash equivalents		3,998,000			5,055,000
Ending cash and cash equivalents	$	4,925,000		$	4,316,000
Cash paid for interest	$	6,489,000		$	5,015,000
Cash paid for income taxes	$	660,000		$	650,000

See accompanying notes to consolidated financial statements.

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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 Insurance Agencies, Inc. (the "Insurance Agency") and ChoiceOne Travel, Inc. (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, 2000 and December 31, 1999, the Consolidated Statements of Income and Comprehensive Income for the three- and nine-month periods ended September 30, 2000 and September 30, 1999, and the Consolidated Statements of Changes in Shareholders' Equity and the Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2000 and September 30, 1999. Operating results for the nine months ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000.

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-KSB for the year ended December 31, 1999.

Stock Transactions, Earnings and Cash Dividends Per Share

The Registrant's Board of Directors declared a conditional five-for-four stock split on the Registrant's common stock on February 16, 2000. The stock split caused one additional share of common stock to be issued for each four shares outstanding. The stock split was payable to

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shareholders of record as of April 27, 2000, and was paid on May 22, 2000. The stock split was conditioned upon and subject to approval by the Registrant's shareholders at the April 27, 2000, annual meeting of a proposed amendment to the Registrant's Restated Articles of Incorporation to increase the authorized common stock of the Registrant from 2,000,000 shares to 4,000,000 shares. The amendment to increase the authorized common stock was approved by a vote of the Registrant's shareholders at the April 27, 2000 annual meeting. A 5% stock dividend was declared on April 14, 1999. The stock dividend was payable to shareholders of record as of May 10, 1999 and was paid on June 1, 1999.

A total of 1,551 shares of common stock were issued to the Registrant's Board of Directors for a cash price of $37,000 under the terms of the Directors' Stock Purchase Plan in the first three quarters of 2000. A total of 3,063 shares were repurchased from shareholders in the first nine months of 2000. The Registrant sold 3,768 shares of common stock to the Registrant's 401(k) savings and retirement plan in the second quarter of 2000.

Earnings per share are based on the weighted average number of shares outstanding during the period. The weighted average number of shares has been adjusted for the five-for-four stock split paid in May 2000 and the 5% stock dividend paid in June 1999.

Cash dividends per share are based on the number of shares outstanding at the time the dividend was paid and have also been adjusted for the five-for-four stock split paid in May 2000 and the 5% stock dividend paid in June 1999.

401(k) Savings and Employee Stock Ownership Plan

The Registrant's 401(k) and employee stock ownership plan contains both a 401(k) salary deferral portion and an employee stock ownership portion (the "ESOP"). The cost of shares that are owned by the ESOP but have not yet been allocated to the ESOP's participants is presented as a reduction of shareholders' equity in the consolidated balance sheet. Compensation expense is recorded based on the market price of unallocated shares as they are committed to be released for allocation to participant accounts. Any difference between the market price and the basis of shares committed to be released is recorded as an adjustment to additional paid-in capital, which is presented as part of common stock in the consolidated balance sheet. Dividends paid on ESOP shares that have been allocated to participants are recorded as a reduction of retained earnings while dividends paid on shares that have not been allocated are reflected as a reduction of the ESOP's debt and related accrued interest.

Reclassifications

Certain amounts presented in prior periods have been reclassified to conform with the 2000 presentation.

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NOTE 2 - ALLOWANCE FOR LOAN LOSSES

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

		Nine Months ended September 30,
		2000			1999
Balance at beginning of period	$	1,907,000		$	1,851,000
Provision charged to expense		550,000			350,000
Recoveries credited to the allowance		86,000			62,000
Loans charged-off		(742,000	)		(351,000	)
Balance at end of period	$	1,801,000		$	1,912,000

Information regarding impaired loans as of September 30, 2000 and December 31, 1999 follows:

		September 30, 2000		December 31, 1999
Loans with no allowance allocated	$	823,000	$	463,000
Loans with allowance allocated		--		434,000
Amount of allowance for loan losses allocated		--		214,000

Information regarding impaired loans follows:

		Nine Months ended September 30,
		2000		1999
Average balance during the period	$	1,106,000	$	1,323,000
Interest income recognized thereon		70,000		56,000
Cash basis interest income recognized		66,000		44,000

NOTE 3 - EMPLOYEE STOCK OWNERSHIP PLAN

The Registrant maintains a 401(k) savings and employee stock ownership plan (the "Plan") for the benefit of substantially all employees. The Plan borrowed approximately $91,000 from the Bank

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in April 2000 to purchase 3,700 shares of the Registrant's common stock at $24.50 per share. The loan is collateralized by the shares of the Registrant's stock. Loan payments will be funded from contributions to the Plan and from cash dividends received on the Registrant's stock. As the Plan makes payments on the loan, a portion of the stock owned by the Plan will be allocated among Plan participants. The amount of unallocated shares of stock is shown as a reduction to shareholders' equity in the consolidated balance sheets.

NOTE 4 - EARNINGS PER SHARE

A reconciliation of the numerators and denominators of the basic earnings per share and diluted earnings per share computations follows:

		Three Months Ended September 30,				Nine Months Ended September 30,
		2000		1999		2000		1999
Basic Earnings Per Share
Net income available to common
shareholders	$	487,000	$	487,000	$	1,453,000	$	1,443,000
Weighted average common
shares outstanding for basic
earnings per share		1,387,037		1,387,414		1,385,407		1,384,744
Basic earnings per share	$	.35	$	.35	$	1.05	$	1.04
Diluted Earnings Per Share
Net income available to common
shareholders	$	487,000	$	487,000	$	1,453,000	$	1,443,000
Weighted average common
shares outstanding for basic
earnings per share		1,387,037		1,387,414		1,385,407		1,384,744
Plus dilutive effect of assumed
exercise of stock options		1,899		2,320		2,491		2,177
Weighted average common and
potentially dilutive common
shares outstanding		1,388,936		1,389,734		1,387,898		1,386,921
Diluted earnings per share	$	.35	$	.35	$	1.05	$	1.04

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NOTE 5 - ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), subsequently amended by SFAS No. 137 and 138, which the Registrant is required to implement effective January 1, 2001. SFAS 133 will require the Registrant to record all derivatives on the balance sheet at fair value. The Registrant's management does not believe the effect of implementing SFAS 133 will have a material impact on its financial position.

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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"). 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," "may," 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 policy or strategy that may come from the Registrant's new President and Chief Executive Officer, 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 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 economy. These are representative of the risk factors that could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.

Net Income and Return on Average Assets and Shareholders' Equity

The Registrant's net income in the third quarter of 2000 was equal to the net income in the same period in 1999. Net income in the first nine months of 2000 was $1,453,000, which represented a $10,000 or 1% increase over the same period in the prior year. As in the first two quarters of 2000, the positive impact upon net income of higher net interest income and noninterest income was offset by growth in both the provision for loan losses and noninterest expense.

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The increase in net interest income in 2000 was due to growth in average interest-earning assets. The growth in interest-earning assets was caused by loan growth in late 1999 and early 2000. The effect of growth in interest-earning assets was partially offset by an increase in interest expense due to both growth in interest-bearing liabilities and higher interest rates. The higher level of noninterest income in 2000 resulted primarily from the purchase of an insurance agency in September 1999. The provision for loan losses was higher in both the third quarter and first nine months of 2000 compared to comparable periods in 1999. The increased provision was caused by a higher level of loan charge-offs experienced in 2000 than in 1999. The growth in noninterest expense in both the third quarter and the first nine months of 2000 was due to salaries and benefits paid to new insurance personnel and the Bank's new wholesale mortgage department, higher occupancy expense due to remodeling at the Bank's main office, and general growth in other expenses.

The return on average assets was .99% for the first nine months of 2000, compared to 1.12% for the same period in 1999. The return on average shareholders' equity was 11.23% for the first three quarters of 2000, compared to 11.70% for the comparable period of the prior year.

Cash and Stock Dividends

Cash dividends declared in the third quarter of 2000 were $250,000, or $.18 per common share, which represented a $.01 per share or 6% increase compared to the dividend paid in the same period of the prior year. The cash dividends paid in the first nine months of 2000 were $732,000 or $.53 per share, which was $.04 or 8% greater than the dividends paid in the same period in 1999. Dividends per share have been adjusted for the five-for-four stock split in 2000 and the 5% stock dividend in 1999. The cash dividend payout percentage in the first nine months of 2000 was 50%, compared to 46% in the same period of 1999. The Registrant's Board of Directors declared a conditional five-for-four stock split on the Registrant's common stock on February 16, 2000. The stock split caused one additional share of common stock to be issued for each four shares outstanding. The stock split, which was payable to shareholders of record as of April 27, 2000, was paid on May 22, 2000. The stock split was conditioned upon and subject to approval by the Registrant's shareholders at the April 27, 2000, annual meeting of a proposed amendment to the Registrant's Restated Articles of Incorporation to increase the authorized common stock of the Registrant from 2,000,000 shares to 4,000,000 shares. The amendment to increase the authorized common stock was approved by a vote of the Registrant's shareholders at the April 27, 2000 annual meeting. The Registrant also declared a 5% stock dividend in April 1999.

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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, 2000 and September 30, 1999. 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.

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Table 1 - Average Balances and Tax Equivalent Interest Rates

		For the Nine Months Ended September 30,
		2000							1999
		Average Balance		Interest		Average Rate			Average Balance		Interest		Average Rate
	(Dollars in Thousands)
Assets
Loans (1)	$	170,842	$	11,919		9.30	%	$	145,206	$	9,990		9.17	%
Taxable securities (2)		6,701		360		7.15			10,689		467		5.84
Nontaxable securities (1)(2)		7,750		444		7.53			8,075		443		7.49
Other		91		2		2.93			92		1		1.45
Interest-earning assets		185,384		12,725		9.15			164,062		10,901		8.86
Noninterest-earning assets		11,487							9,386
Total assets	$	196,871						$	173,448
Liabilities and shareholders' equity
Interest-bearing transaction
accounts	$	26,204		673		3.42		$	25,742		576		2.98
Savings deposits		7,874		70		1.19			8,598		75		1.16
Time deposits		83,637		3,661		5.84			72,345		2,920		5.38
Federal Home Loan Bank advances		36,943		1,792		6.47			26,501		1,227		6.17
Other		7,957		340		5.70			7,271		260		4.77
Interest-bearing liabilities		162,615		6,536		5.36			140,457		5,058		4.80
Demand deposits		14,713							15,127
Other noninterest-bearing liabilities		2,258							1,382
Shareholders' equity		17,285							16,482
Total liabilities and
shareholders' equity	$	196,871						$	173,448
Net interest income (tax-equivalent
basis) - interest spread				6,189		3.79	%				5,843		4.06	%
Tax equivalent adjustment (1)				(163	)						(162	)
Net interest income			$	6,026						$	5,681
Net interest income as a percentage
of earning assets (tax-equivalent
basis)						4.45	%						4.75	%

(1)	Interest on nontaxable securities and loans has been adjusted to a fully tax-equivalent basis to facilitate comparison to the taxable interest-earning assets. The adjustment uses an incremental tax rate of 34% for the periods presented.
(2)	The average balance includes the effect of unrealized appreciation/depreciation on securities, while the average rate was computed on the average amortized cost of the securities.

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Table 2 - Changes in Tax Equivalent Net Interest Income

		Nine Months Ended September 30,
		2000 Over 1999
		Total			Volume			Rate
		(Dollars in Thousands)
Increase (decrease) in interest income (1)
Loans (2)	$	1,929		$	1,783		$	146
Taxable securities		(107	)		(192	)		85
Nontaxable securities (2)		1			(1	)		2
Other		1			--			1
Net change in tax-equivalent income		1,824			1,590			234
Increase (decrease) in interest expense (1)
Interest-bearing transaction accounts		97			10			87
Savings deposits		(5	)		(7	)		2
Time deposits		741			480			261
Federal Home Loan Bank advances		565			503			62
Other		80			26			54
Net change in interest expense		1,478			1,012			466
Net change in tax-equivalent
net interest income	$	346		$	578		$	(232	)

(1)

The volume variance is computed as the change in volume (average balance) multiplied by the previous year's interest rate. The rate variance is computed as the change in interest rate multiplied by the previous year's volume (average balance). The change in interest due to both volume and rate has been allocated to the volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.

(2)

Interest on nontaxable investment securities and loans has been adjusted to a fully tax-equivalent basis using an incremental tax rate of 34% for the periods presented.

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Net Interest Income

As shown in Tables 1 and 2, tax equivalent net interest income increased $346,000 in the first nine months of 2000 compared to the same period in 1999. The level of growth has slowed from $199,000 in the first quarter of 2000 to $83,000 in the second quarter and $64,000 in the third quarter of 2000 compared to comparable periods in 1999. This trend reflects the tightening of the Registrant's interest rate spread that has occurred in 2000.

The average balance of loans increased $25,636,000 from the first nine months of 1999 to the same period in 2000. This loan growth caused interest income from loans to be $1,929,000 higher in 2000 than in 1999. The impact of increased loan volume was offset slightly by lower average balances in investment securities in 2000. Loan growth in 2000 was funded for the most part by time deposits and Federal Home Loan Bank advances. Increased interest expense from the higher volume in these two funding categories in 2000 offset approximately two-thirds of the effect of loan growth. The net increase in net interest income due to volume was $578,000 in the first nine months of 2000 compared to the same period in 1999. This reflected the impact of the difference between the rate earned on the asset growth and the rate paid on the liability growth.

Table 1 shows that the net interest income spread was 3.79% for the first nine months of 2000, compared to 4.06% for the first nine months of 1999. The net interest income spread was 3.84% for the first quarter of 2000 and 3.78% for the first six months of 2000. This indicates that the net interest income spread stabilized in the third quarter of 2000 after decreasing in the second quarter. The Registrant's net interest margin continued to be affected by a higher funding cost in the first three quarters of 2000. The Registrant's average rate on interest-earning assets was 9.15% for the first nine months of 2000, compared to 9.05% for the first two quarters of 2000 and 8.86% for the first nine months of 1999. However, the increase in the average cost paid on interest-bearing liabilities has exceeded the growth in the asset rate in 2000. The average rate paid on interest-bearing liabilities was 5.36% in the first nine months of 2000, compared to 5.27% for the first two quarters of 2000 and 4.80% for the first nine months of 1999. The increase in average rates for both assets and liabilities was primarily due to higher general market interest rates in 2000 than in 1999. The rise in interest rates affected the Registrant's liabilities more than its assets because more liabilities were available to reprice than assets during 1999 and the first three quarters of 2000.

Increases in general market interest rates affected the Bank's net interest income in the first and second quarters of 2000. The Federal Reserve Bank's Open Market Committee (the "FOMC") raised the federal funds interest rate 175 basis points since the end of 1998. This included two increases of 25 basis points each in the first quarter of 2000 and one increase of 50 basis points in the second quarter of 2000. Many banks, including the Bank, raised their prime lending rates each time that the federal funds rate increased. These increases in lending rates have caused economic signs that some economists believe show that the national economy may be slowing. The FOMC has not raised interest rates since May 2000 and the Registrant's management believes that there is a reasonable likelihood that the FOMC may refrain from any rate changes for the remainder of 2000.

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Although the FOMC has not raised the federal funds interest rate since May 2000, upward pressures on deposit and other funding costs continued in the third quarter of 2000 and are expected to continue through the end of the year. Steadying rates on interest-earning assets and rising rates on interest-bearing liabilities have caused a continuation of the net interest margin contraction. The Bank's loan officers have adjusted and expect to continue to adjust certain rates on loans in an attempt to maintain the interest margin. Although loan growth slowed in the second and third quarters of 2000, the Bank's loan officers plan to emphasize loan growth in the remainder of 2000 to attempt to offset the effect of interest rates. Commercial loans are planned to be one of the loan areas where this growth may occur. The Registrant also plans to strive for more growth in local deposits. Local deposits bear a lower interest rate than national market time certificates and Federal Home Loan Bank advances.

Provision and Allowance for Loan Losses

The allowance for loan losses decreased $162,000 from June 30, 2000 to September 30, 2000 and has decreased $106,000 since the end of 1999. The allowance was 1.04% of total loans as of September 30, 2000, compared to 1.14% at June 30, 2000, and 1.14% at December 31, 1999. The allowance for loan losses as a percentage of nonperforming loans was 134% as of September 30, 2000, compared to 113% as of June 30, 2000, and 93% as of December 31, 1999. The increases in the percentage coverage of nonperforming loans were due to a decrease in the dollar level of nonperforming loans from $2,054,000 at December 31, 1999 to $1,732,000 at June 30, 2000 and $1,348,000 at September 30, 2000. The provision for loan losses was $200,000 higher in the first nine months of 2000 than in the same period in 1999. The increase was due to a higher level of chargeoffs in 2000 than in 1999. The Bank's management believes that the decrease in the dollar amount of the allowance for loan losses in the third quarter of 2000 was reasonable due to chargeoffs in the third quarter. Chargeoffs of two commercial loans and one construction real estate mortgage loan totaled $230,000 in the third quarter of 2000. Specific allowances of $275,000 had been set aside for the three loans as of June 30, 2000.

Chargeoffs and recoveries for those loan categories with activity in the periods ended September 30, 2000 and September 30, 1999 were as follows:

		2000				1999
		Chargeoffs		Recoveries		Chargeoffs		Recoveries
Commercial	$	219,000	$	2,000	$	98,000	$	13,000
Consumer		423,000		84,000		253,000		49,000
Real estate mortgage -
construction		100,000		--		--		--
	$	742,000	$	86,000	$	351,000	$	62,000

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The increase in commercial loan chargeoffs in the first nine months of 2000 compared to the same period in 1999 was primarily due to chargeoffs on two commercial loans in the third quarter of 2000. The increase in consumer loan chargeoffs resulted from a higher level of chargeoffs of both direct loans and indirect automobile loans. The chargeoff in construction real estate mortgage loans in 2000 was related to one borrower. The Bank's loan management has reviewed those loan types and lines of business where chargeoffs occurred in 2000. The Bank's loan management has tightened credit standards in some cases and plans to continue to monitor the loan portfolio.

The Bank's management expects that the amount of chargeoffs that the Bank will experience in the remainder of 2000 will be dependent on the extent to which business and consumer borrowers are affected by the local economy and on many other economic factors. If the level of growth in the national economy begins to slow as is forecast by certain economists, the Bank may continue to experience higher levels of chargeoffs in both commercial and consumer loans. This factor will affect management's review of the adequacy of the allowance for loan losses. The adequacy of the allowance for loan losses may also be affected by nonconforming residential mortgages, which the Bank has purchased for its portfolio to a limited extent in 1999 and 2000. The Bank's mortgage department has begun to set aside a higher allowance for the nonconforming mortgage loans than for the loans it originates through normal channels. As chargeoffs, changes in the level of nonperforming loans and loan growth occur in the remainder of 2000, the provision and allowance for loan losses will be reviewed by the Bank's management and adjusted as believed necessary.

Noninterest Income

Total noninterest income increased $135,000 in the third quarter and $273,000 in the first nine months of 2000 compared to comparable periods in the prior year. Growth in insurance commission income was the primary reason for the increases as the operations of InsuranceSource were included in 2000's totals. InsuranceSource was an independent insurance agency purchased by the Insurance Agency in September 1999. Mortgage loan sales and servicing income increased $21,000 in the third quarter of 2000 compared to the same quarter in 1999. This was in contrast to a decrease of $65,000 in the first half of 2000. The level of sales of mortgage loans, though still below last year's levels for the first nine months of 2000, began to increase in the third quarter of 2000. The Bank's mortgage lenders believe that a decline in mortgage rates in recent months may help to support the increased loan level through the end of 2000.

Noninterest Expense

Total noninterest expense increased $89,000 in the third quarter of 2000 and has increased $408,000 in the first nine months of 2000 compared to the same periods in 1999. The level of expense growth has slowed during 2000 as the $89,000 increase in the third quarter followed increases of $144,000 in the second quarter and $175,000 in the first quarter of 2000.

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Approximately one-half of the expense growth in the first nine months of 2000 was due to higher salaries and benefits expense. The increase in salaries and benefits expense was caused by staffing increases due to the purchase of the InsuranceSource Agency and general staffing increases and raises. The Bank's management believes that the growth in salaries and benefits expense may begin to slow in the last quarter of 2000 since the InsuranceSource Agency was purchased on September 1, 1999 and its operations have been included since that date. The increase in occupancy expense in the first nine months of 2000 was due primarily to costs related to fixed asset additions in both 1999 and 2000. The growth in other noninterest expense was caused by higher levels of legal and professional fees, consulting expense, loan collection expense, and amortization of goodwill.

Securities

The balance of total securities decreased $7,000 in the third quarter of 2000 and has decreased $677,000 since the end of 1999. The decrease was caused by maturities of securities and principal paydowns of mortgage-backed securities. The effect of maturities and paydowns was partially offset by the purchase of a $1,100,000 local municipal bond issue in June 2000. The Bank's investment committee plans to continue its monitoring of the securities portfolio and plans to purchase securities when believed prudent. The Bank used certain of its securities as collateral for repurchase agreements in the first three quarters of 2000 and plans to continue this practice in the remainder of the year. The securities portfolio may also serve as a source of liquidity for deposit needs.

Loans

Total loans increased $1,332,000 in the third quarter of 2000 after growing $4,143,000 in the first two quarters of 2000. The growth in the third quarter was in contrast to a $37,000 decline in total loans that occurred in 2000's second quarter. The main reason for the increase in growth in the third quarter was a change in the balance of commercial loans. Commercial loans increased $919,000 in the third quarter of 2000 compared to a decrease of $2,354,000 in the second quarter. Commercial loans were affected by some large loan paydowns in the second quarter of 2000. The level of commercial loan growth has also been affected in 2000 by changes in the Registrant's commercial loan officers. The agricultural loans balance decreased $324,000 in the third quarter of 2000 and has declined $1,569,000 since the end of 1999. The agricultural loans balance normally decreases during the first three quarters of the year and increases in the fourth quarter when agricultural loan borrowers need funds for operations. Both commercial and agricultural loans have been and are expected to continue to be affected by a high level of competition within the Bank's market areas. Management plans to continue to use its officer calling program to attempt to generate demand for commercial and agricultural loans.

Construction real estate mortgage loans increased $941,000 in the third quarter of 2000 and have grown $1,741,000 in the first three quarters of 2000. Growth in this loan type has occurred as a result of the Registrant's mortgage loan department providing construction loan servicing for an

- -20-
outside mortgage company. Residential real estate mortgage loans grew $125,000 in the third quarter of 2000 after increasing $1,359,000 and $2,664,000 in the second and first quarters of 2000, respectively. The slowdown in residential mortgage growth has been caused by relatively high interest rates. Mortgage rates declined slightly in the third quarter of 2000. The Registrant's mortgage lenders believe that this may begin to stimulate demand in this area. Consumer loans decreased $328,000 in the third quarter of 2000 and have declined $307,000 since December 31, 1999. The lack of growth in 2000 has been primarily due to decreased activity in indirect automobile lending. The Registrant's consumer lender has tightened credit standards on indirect automobile loans due to larger than desired chargeoff levels in this loan type.

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 loan categories for 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 the three nonperforming categories as of September 30, 2000 and December 31, 1999 were as follows:

		September 30, 2000		December 31, 1999
Loans accounted for on a nonaccrual basis	$	582,000	$	1,322,000
Loans, not included in nonaccrual loans, which are
contractually past due 90 days or more as to
interest or principal payments		460,000		667,000
Loans, not included in nonaccrual or loans past due
90 days or more, which are considered troubled
debt restructurings		165,000		60,000
Total nonperforming loans		1,207,000		2,049,000
Other nonperforming assets - other real estate		141,000		--
Total nonperforming assets	$	1,348,000	$	2,049,000

Management 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 $1,438,000 as of September 30, 2000, compared to $1,080,000 as of June 30, 2000 and $3,702,000 as of December 31, 1999. The increase that occurred from June 30, 2000 to September 30, 2000 was primarily due to one loan that was added to the list. Approximately $12,000 of the allowance for loan losses had been specifically allocated to these loans at September 30, 2000. However, the allowance for loan losses that has not been specifically allocated to individual loans is available for these potential problem loans.

- -21-

Deposits and Other Funding Sources

Total deposits increased $622,000 in the third quarter of 2000 after growing $1,038,000 in the second quarter and $5,279,000 in the first quarter of 2000. The trend of deposit growth during 2000 has been caused by a slowdown in deposits obtained from the Registrant's local market areas. Deposits obtained from the Registrant's local market areas decreased $835,000 in the third quarter of 2000 after increasing $1,144,000 and $2,233,000 in the second and first quarters of 2000, respectively. Noninterest-bearing demand deposits declined $1,408,000 in the third quarter of 2000 and have decreased $1,200,000 since December 31, 1999. The Registrant's management believes that this decrease has been caused by the high level of competition for this deposit product. Interest-bearing demand deposits declined $737,000 in the third quarter of 2000 and have grown $589,000 since the end of 1999. Most of the increase in 2000 has occurred in higher interest rate types of demand accounts. Time deposits from the Registrant's local market areas increased $995,000 in the third quarter of 2000 and have grown $2,854,000 in the first three quarters of 2000. Interest rate promotions in the local markets have been the main cause for the increased balance. National market time deposits grew $1,458,000 in the third quarter of 2000 and have increased $4,132,000 since the end of the prior year. National market time deposits have been used to supplement local deposits in 2000 when local deposit growth has been insufficient to support loan growth. The Registrant's management believes that it will continue to use national market time deposits and Federal Home Loan Bank advances in the future to help provide funds for loan growth.

Shareholders' Equity

Total shareholders' equity increased $307,000 in the third quarter of 2000 and has grown $754,000 since the end of 1999. Equity growth resulted from retained earnings, $130,000 received from the issuance of common stock, and a $56,000 increase in the balance of accumulated other comprehensive income. This was offset by $91,000 of the Registrant's common stock purchased by the Registrant's 401(k) savings and employee stock ownership plan and $58,000 used to repurchase the Registrant's common stock.

Total shareholders' equity as a percentage of assets was 8.84% as of September 30, 2000, compared to 8.82% as of June 30, 2000 and 8.75% as of December 31, 1999. The equity ratio has not changed significantly in 2000 as equity and assets have grown at approximately the same pace. The Bank's management plans to continue to try to decrease the equity to assets ratio to more effectively use shareholders' equity by leveraging it through asset growth. 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, 2000.

Capital Resources

The Bank completed a new drive-up teller addition for the Bank's Plainfield Avenue office in September. The Bank's management moved the Bank's Alpine Office to a new location in

- -22-
October 2000. Costs for the Alpine Office are expected to range from $150,000 to $200,000. 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 increased $1,136,000 in the third quarter of 2000 and has grown $927,000 since the end of 1999. The Registrant's 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 that can be purchased from correspondent banks, and advances available from the Federal Home Loan Bank of Indianapolis (the "FHLB"). The Bank has available a secured line of credit with the Federal Reserve Bank of Chicago. The line is secured by commercial loans. Approximately $25,000,000 to $30,000,000 is available under the line of credit. 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 FHLB issued proposed regulations in March 2000 that would allow certain commercial and agricultural loans to be used as collateral for advances from the FHLB. These regulations would expand the Bank's ability to borrow from the FHLB and would provide additional liquidity. The FHLB in Indianapolis, Indiana has indicated that the expanded collateral rules may be in place by the first quarter of 2001.

Interest rate sensitivity is monitored by the Bank's 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 immediate 200 basis point increases and decreases in interest rates and the effect on net income and shareholders' equity is measured. The rate shock computation as of September 30, 2000 caused net income to decrease 2.8% if rates increased and to decrease 3.2% if rates decreased. An insignificant change in the market value of shareholders' equity occurred if interest rates increased or decreased. An increase in interest rates caused an insignificant change in the value of shareholders' equity. The Committee will continue to monitor the effect of changes in interest rates on the Registrant's financial condition.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

- -23-

PART II.  OTHER INFORMATION

Item 2.  Changes in Securities and Use of Proceeds

On July 28, 2000, the Registrant issued 603 shares of common stock, without par value ("Common Stock"), to the directors of the Registrant pursuant to the ChoiceOne Financial Services, Inc. Directors' Stock Purchase Plan for an aggregate cash price of $12,000. The Registrant relied on the exemption contained in Section 4(6) of the Securities Act of 1933 in connection with this sale.

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:
Exhibit Number		Document
3.1		Amended and Restated Articles of Incorporation of the Registrant. Previously filed as an exhibit to the Registrant's Form 10-Q Quarterly Report for the quarter ended June 30, 2000. Here incorporated by reference.
3.2		Bylaws of the Registrant as currently in effect and any amendments thereto. Previously filed as an exhibit to the Registrant's Form 10-QSB Quarterly Report for the quarter ended September 30, 1998. Here incorporated by reference.
27		Financial Data Schedule.
2.	Reports on Form 8-K. No reports on Form 8-K were filed during the three months ended September 30, 2000. However, a report on Form 8-K was filed on November 8, 2000. This filing was made under Item 9, Regulation FD Disclosure, and addressed the appointment of a new President and Chief Executive Officer for the Registrant.

- -24-

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.

	CHOICEONE FINANCIAL SERVICES, INC.
DateNovember 13, 2000	/s/Jon E. Pike Jon E. Pike Chairman of the Board
DateNovember 13, 2000	/s/Thomas L. Lampen Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

- -25-

INDEX TO EXHIBITS

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

Exhibit Number	Document
3.1	Amended and Restated Articles of Incorporation of the Registrant. Previously filed as an exhibit to the Registrant's Form 10-Q Quarterly Report for the quarter ended June 30, 2000. Here incorporated by reference.
3.2	Bylaws of the Registrant as currently in effect and any amendments thereto. Previously filed as an exhibit to the Registrant's Form 10-QSB Quarterly Report for the quarter ended September 30, 1998. Here incorporated by reference.
27	Financial Data Schedule.