10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2011

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                    to                    

Commission File Number: 000-19202

ChoiceOne Financial Services, Inc.

(Exact Name of Registrant as Specified in its Charter)

Michigan	38-2659066
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
109 East Division Street, Sparta, Michigan	49345
(Address of Principal Executive Offices)	(Zip Code)

(616) 887-7366

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934:

Common Stock

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate 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  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained in this form, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of June 30, 2011, the aggregate market value of common stock held by non-affiliates of the Registrant was $40.3 million. This amount is based on an average bid price of $12.25 per share for the Registrant’s stock as of such date.

As of March 15, 2012, the Registrant had 3,293,626 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part I, Item 1, and Part II, Items 5 through 9A incorporate by reference portions of the Registrant’s Annual Report to Shareholders for the year ended December 31, 2011.

Part III, Items 10 through 14 incorporate by reference portions of the Registrant’s Definitive Proxy Statement for the Registrant’s Annual Meeting of Shareholders to be held April 25, 2012.

FORWARD-LOOKING STATEMENTS

This report and the documents incorporated into 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 the Registrant itself. Words such as “anticipates,” “believes,” “expects,” “forecasts,” “intends,” “is likely,” “plans,” “predicts,” “projects,” “may,” “could,” “estimates,” variations of such words and similar expressions are intended to identify such forward-looking statements. Management’s determination of the provision and allowance for loan losses, the carrying value of goodwill and loan servicing rights, and the fair value of investment securities (including whether any impairment on any investment security is temporary or other than temporary) and management’s assumptions concerning pension and other postretirement benefit plans involve judgments that are inherently forward-looking. All of the information concerning interest rate sensitivity is forward-looking. 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, the risk factors disclosed in Item 1A of this report, 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 abilities to repay loans; changes in the local and national economies; changes in market conditions; the level and timing of asset growth; local and global uncertainties such as acts of terrorism and military actions; and current uncertainties and fluctuations in the financial markets and stocks of financial services providers due to concerns about credit availability and concerns about the Michigan economy in particular. These are representative of the risk factors that could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.

PART I

Item 1. Business

General

ChoiceOne Financial Services, Inc. (the “Registrant”) is a one-bank holding company registered under the Bank Holding Company Act of 1956, as amended. The Registrant was incorporated on February 24, 1986, as a Michigan corporation. The Registrant was formed to create a bank holding company for the purpose of acquiring all of the capital stock of ChoiceOne Bank (formerly Sparta State Bank), which became a wholly owned subsidiary of the Registrant on April 6, 1987. The Registrant’s only subsidiary and significant asset as of December 31, 2011, was ChoiceOne Bank (the “Bank”). Effective January 1, 1996, the Bank acquired all of the outstanding common stock of ChoiceOne Insurance Agencies, Inc. (formerly Bradford Insurance Centre, Ltd.), an independent insurance agency headquartered in Sparta, Michigan (the “Insurance Agency”). Effective January 1, 2002, the Bank formed ChoiceOne Mortgage Company of Michigan (the “Mortgage Company”). In December 2008, the operations of the Mortgage Company were consolidated into the Bank and the Mortgage Company subsidiary was eliminated. The Bank also owns a 25% interest in a non-banking corporation, West Shore Computer Services, Inc., a data processing firm located in Scottville, Michigan. Effective November 1, 2006, the Registrant merged with Valley Ridge Financial Corp. (“VRFC”), a single-bank holding company for Valley Ridge Bank (“VRB”). In the merger, the Registrant issued shares of its common stock in exchange for all outstanding shares of VRFC. In December 2006, VRB was consolidated into the Bank.

2

The Registrant’s business is primarily concentrated in a single industry segment—banking. The Bank is a full-service banking institution that offers a variety of deposit, payment, credit and other financial services to all types of customers. These services include time, savings, and demand deposits, safe deposit services, and automated transaction machine services. Loans, both commercial and consumer, are extended primarily on a secured basis to corporations, partnerships and individuals. Commercial lending covers such categories as business, industry, agricultural, construction, inventory and real estate. The Bank’s consumer loan department makes direct and indirect loans to consumers and purchasers of residential and real property. The Mortgage Company originated and sold a full line of conventional type mortgage loans for 1-4 family and multi-family residential real estate properties. No material part of the business of the Registrant or the Bank is dependent upon a single customer or very few customers, the loss of which would have a materially adverse effect on the Registrant.

The Bank’s primary market area lies within portions of Kent, Muskegon, Newaygo, and Ottawa counties in Michigan in the communities where the Bank’s offices are located. Currently the Bank serves these markets through thirteen full-service offices. The Registrant and the Bank have no foreign assets or income.

The principal source of revenue for the Registrant and the Bank is interest and fees on loans. On a consolidated basis, interest and fees on loans accounted for 67%, 69%, and 70% of total revenues in 2011, 2010, and 2009, respectively. Interest on securities accounted for 11%, 10%, and 11% of total revenues in 2011, 2010, and 2009, respectively.

The Consolidated Financial Statements incorporated by reference in Part II, Item 8 contain information concerning the financial position and results of operations of the Registrant.

Competition

The Bank’s competition primarily comes from other financial institutions located within Kent, Muskegon, Newaygo, and Ottawa counties in western Michigan. There are a number of larger commercial banks within the Bank’s primary market area. The Bank also competes with a large number of other financial institutions, such as savings and loan associations, insurance companies, consumer finance companies, credit unions and commercial finance and leasing companies for deposits, loans and service business. Money market mutual funds, brokerage houses and nonfinancial institutions provide many of the financial services offered by the Bank. Many of these competitors have substantially greater resources than the Bank. The principal methods of competition for financial services are price (the rates of interest charged for loans, the rates of interest paid for deposits and the fees charged for services) and the convenience and quality of services rendered to customers.

Supervision and Regulation

Banks and bank holding companies are extensively regulated. The Registrant is subject to supervision and regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”). The Registrant’s activities are generally limited to owning or controlling banks and engaging in such other activities as the Federal Reserve Board may determine to be closely related to banking. Prior approval of the Federal Reserve Board, and in some cases various other government agencies, is required for the Registrant to acquire control of any additional bank holding companies, banks or other operating subsidiaries.

The Bank is chartered under state law and is subject to regulation by the Michigan Office of Financial and Insurance Regulation. State banking laws place restrictions on various aspects of banking, including permitted activities, loan interest rates, branching, payment of dividends and capital and surplus requirements. The Bank is a member of the Federal Reserve System and is also subject to regulation by the Federal Reserve Board. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (the “FDIC”) to the extent provided by law. The Bank became a member of the Federal Home Loan Bank system in March 1993. This provides certain advantages to the Bank, including favorable borrowing rates for certain funds.

The Registrant is a legal entity separate and distinct from the Bank. There are legal limitations on the extent to which the Bank can lend or otherwise supply funds to the Registrant. In addition, payment of dividends to the Registrant by the Bank is subject to various state and federal regulatory limitations.

3

Under Federal Reserve Board policy, the Registrant is expected to act as a source of financial strength to the Bank and to commit resources to support it. The FDIC formed the Deposit Insurance Fund (“DIF”) in accordance with the Federal Deposit Insurance Reform Act of 2005 (“Reform Act”). The FDIC will maintain the insurance reserves of the DIF by assessing depository institutions an insurance premium.

The FDIC adopted final regulations that implemented the Reform Act to create a stronger and more stable insurance system. The final regulations enable the FDIC to tie each depository institution’s DIF insurance premiums both to the balance of insured deposits, as well as to the degree of risk the institution poses to the DIF. In addition, the FDIC has new flexibility to manage the DIF’s reserve ratio within a range, which in turn may help prevent sharp swings in assessment rates that were possible under the design of the former system. Under the new risk-based assessment system, the FDIC will evaluate each depository institution’s risk based on three primary sources of information: supervisory ratings for all insured institutions, financial ratios for most institutions, and long-term debt issuer ratings for large institutions that have them. Neither the Registrant nor the Bank has a long-term debt issuer rating. The ability to differentiate on the basis of risk will improve incentives for effective risk management and will reduce the extent to which safer banks subsidize riskier ones.

The 2008 DIF rates for nearly all depository institutions varied between five and seven cents for every $100 of deposits. The 2009 rates were approximately double those of the prior year as depository institutions classified in the FDIC’s Risk Category I were assessed between 12 and 14 cents for every $100 of deposits. The rates could increase up to 50 cents for every $100 of deposits for riskier institutions. In addition, the FDIC imposed a special assessment of 5 basis points on each insured institution’s assets minus its Tier 1 capital on September 30, 2009. The FDIC passed a regulation in November 2010 that changed the deposit insurance assessment base from total domestic deposits to average total assets less average tangible equity.

The Deposit Insurance Funds Act of 1996 authorized the Financing Corporation (“FICO”) to impose periodic assessments on all depository institutions. The purpose of these periodic assessments is to spread the cost of the interest payments on the outstanding FICO bonds issued to recapitalize the Savings Association Insurance Fund (“SAIF”) over a larger number of institutions. Until the change in the law, only SAIF member institutions bore the cost of funding these interest payments.

Banks are subject to a number of federal and state laws and regulations, which have a material impact on their business. These include, among others, minimum capital requirements, state usury laws, state laws relating to fiduciaries, the Truth in Lending Act, the Truth in Savings Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Expedited Funds Availability Act, the Community Reinvestment Act, the Real Estate Settlement Procedures Act, the USA PATRIOT Act, the Bank Secrecy Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, electronic funds transfer laws, redlining laws, predatory lending laws, antitrust laws, environmental laws, money laundering laws and privacy laws. The instruments of monetary policy of authorities, such as the Federal Reserve Board, may influence the growth and distribution of bank loans, investments and deposits, and may also affect interest rates on loans and deposits. These policies may have a significant effect on the operating results of banks.

Bank holding companies may acquire banks and other bank holding companies located in any state in the United States without regard to geographic restrictions or reciprocity requirements imposed by state banking law. Banks may also establish interstate branch networks through acquisitions of and mergers with other banks. The establishment of de novo interstate branches or the acquisition of individual branches of a bank in another state (rather than the acquisition of an out-of-state bank in its entirety) is allowed only if specifically authorized by state law.

Michigan banking laws do not significantly restrict interstate banking. The Michigan Banking Code permits, in appropriate circumstances and with the approval of the Office of Financial and Insurance Regulation, (1) acquisition of Michigan banks by FDIC-insured banks, savings banks or savings and loan associations located in other states, (2) sale by a Michigan bank of branches to an FDIC-insured bank, savings bank or savings and loan association located in a state in which a Michigan bank could purchase branches of the purchasing entity, (3) consolidation of Michigan banks and FDIC-insured banks, savings banks or savings and loan associations located in other states having laws permitting such consolidation, (4) establishment of branches in Michigan by FDIC-insured banks located in other states, the District of Columbia or U.S. territories or protectorates having laws permitting a Michigan bank to establish a branch in such jurisdiction, and (5) establishment by foreign banks of branches located in Michigan.

4

Effects of Compliance With Environmental Regulations

The nature of the business of the Bank is such that it holds title, on a temporary or permanent basis, to a number of parcels of real property. These include properties owned for branch offices and other business purposes as well as properties taken in or in lieu of foreclosure to satisfy loans in default. Under current state and federal laws, present and past owners of real property may be exposed to liability for the cost of clean up of environmental contamination on or originating from those properties, even if they are wholly innocent of the actions that caused the contamination. These liabilities can be material and can exceed the value of the contaminated property. Management is not presently aware of any instances where compliance with these provisions will have a material effect on the capital expenditures, earnings or competitive position of the Registrant or the Bank, or where compliance with these provisions will adversely affect a borrower’s ability to comply with the terms of loan contracts.

Employees

As of February 29, 2012, the Registrant, the Bank and the Insurance Agency employed 146 employees, of which 114 were full-time employees. The Registrant, Bank, and Insurance Agency believe their relations with their employees are good.

Statistical Information

Additional statistical information describing the business of the Registrant appears on the following pages and in Management’s Discussion and Analysis of Financial Condition and Results of Operations incorporated by reference in Item 7 of this report and in the Consolidated Financial Statements and the notes thereto incorporated by reference in Item 8 of this report.

The following statistical information should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and notes thereto incorporated by reference in this report.

Securities Portfolio

The carrying value of securities categorized by type at December 31 was as follows:

(Dollars in thousands)

	2011		2010		2009
U.S. Government and federal agency	$	40,413	$	29,066	$	18,571
State and municipal		54,499		47,620		44,599
Mortgage-backed		9,780		7,599		8,929
Corporate		6,011		2,883		—
FDIC-guaranteed financial institution debt		2,038		2,053		—
Equity securities		1,535		1,599		2,314
Total	$	114,276	$	90,820	$	74,413

The Registrant did not hold investment securities from any one issuer at December 31, 2011, that were greater than 10% of the Registrant’s shareholders’ equity, exclusive of U.S. Government and U.S. Government agency securities.

Presented below is the fair value of securities as of December 31, 2011 and 2010, a schedule of maturities of securities as of December 31, 2011, and the weighted average yields of securities as of December 31, 2011.

5

(Dollars in thousands)

	Securities maturing within:
	Less than 1 Year		1 Year - 5 Years		5 Years - 10 Years		More than 10 Years		Fair Value at Dec. 31, 2011		Fair Value at Dec.  31, 2010
U.S. Government and federal agency	$	11,456	$	24,954	$	4,003	$	—	$	40,413	$	29,066
State and municipal		9,041		26,001		18,869		588		54,499		47,620
Mortgage-backed securities		2,171		4,796		2,212		601		9,780		7,599
Corporate		305		5,706		—		—		6,011		2,883
FDIC-guaranteed financial institution debt		—		2,038		—		—		2,038		2,053
Total debt securities		22,973		63,495		25,084		1,189		112,741		89,221
Equity securities (1)		—		267		—		500		1,535		1,599
Total securities	$	22,973	$	63,762	$	25,084	$	1,689	$	114,276	$	90,820

	Weighted average yields:
U.S. Government and federal agency		2.27	%	1.63	%	2.31	%	—	%	1.88	%
State and municipal (2)		5.22		4.71		4.91		5.79		4.87
Mortgage-backed securities		2.83		3.43		2.35		2.36		2.99
Corporate		1.31		1.96		—		—		1.93
FDIC-guaranteed financial institution debt		—		1.62		—		—		1.62
Equity securities (2)		—		4.30		—		3.75		5.17

(1) Equity securities are preferred stock that may or may not have a stated maturity.

(2) The yield is computed for tax-exempt securities on a fully tax-equivalent basis at an incremental tax rate of 34%.

Loan Portfolio

The Bank’s loan portfolio categorized by loan type (excluding loans held for sale) as of December 31 is presented below.

(Dollars in thousands)

	2011		2010		2009		2008		2007
Agricultural	$	38,929	$	29,681	$	31,322	$	23,408	$	24,765
Commercial and industrial		58,685		55,947		53,964		57,587		51,242
Consumer		18,657		16,709		16,285		16,047		15,939
Real estate – commercial		106,250		116,351		121,100		123,952		125,960
Real estate – construction		1,169		853		1,158		2,026		4,048
Real estate – residential		96,437		97,399		98,887		102,957		106,404
Total loans, gross	$	320,127	$	316,940	$	322,716	$	325,977	$	328,358

6

Maturities and Sensitivities of Loans to Changes in Interest Rates

The following schedule presents the maturities of loans (excluding residential real estate and consumer loans) as of December 31, 2011. All loans over one year in maturity (excluding residential real estate and consumer loans) are also presented classified according to the sensitivity to changes in interest rates as of December 31, 2011.

(Dollars in thousands)

Loan Type	Less than 1 Year		1 Year – 5 Years		More than 5 Years		Total
Agricultural	$	10,748	$	17,262	$	10,919	$	38,929
Commercial and industrial		21,908		28,054		8,723		58,685
Real estate – commercial		24,314		76,741		5,195		106,250
Real estate – construction		970		199		—		1,169
Totals	$	57,940	$	122,256	$	24,837	$	205,033

Loan Sensitivity to Changes in Interest Rates	Less than 1 Year		1 Year – 5 Years		More than 5 Years		Total
Loans with fixed interest rates	$	22,406	$	91,988	$	22,019	$	136,413
Loans with floating or adjustable interest rates		35,534		30,268		2,818		68,620
Totals	$	57,940	$	122,256	$	24,837	$	205,033

(1) Loan maturities are classified according to the contractual maturity date or the anticipated amortization period, whichever is appropriate. The anticipated amortization period is used in the case of loans where a balloon payment is due before the end of the loan’s normal amortization period. At the time the balloon payment is due, the loan can either be rewritten or payment in full can be requested. The decision regarding whether the loan will be rewritten or a payment in full will be requested will be based upon the loan’s payment history, the borrower’s current financial condition, and other relevant factors.

Risk Elements

The following loans were classified as nonperforming as of December 31:

(Dollars in thousands)

	2011		2010		2009		2008		2007
Loans accounted for on a non-accrual basis	$	4,155	$	6,273	$	11,881	$	8,305	$	5,605
Accruing loans which are contractually past due 90 days or more as to principal or interest payments		70		23		202		333		188
Loans defined as “troubled debt restructurings”		2,448		2,141		1,919		605		—
Totals	$	6,673	$	8,437	$	14,002	$	9,243	$	5,793

A loan is placed on nonaccrual status at the point in time at which the collectability of principal or interest is considered doubtful.

The table below illustrates interest forgone and interest recorded on nonperforming loans for the years presented.

(Dollars in thousands)

	2011		2010		2009		2008		2007
Interest on non-performing loans which would have been earned had the loans been in an accrual or performing status	$	373	$	492	$	567	$	442	$	383
Interest on non-performing loans that was actually recorded when received	$	—	$	2	$	—	$	—	$	—

Potential Problem Loans

At December 31, 2011, there were $22.4 million of loans not disclosed above where some concern existed as to the borrowers’ abilities to comply with original loan terms. Specific loss allocations totaling $431,000 from the allowance for loan losses had been allocated for all nonperforming and potential problem loans as of December 31, 2011. However, the entire allowance for loan losses is also available for these potential problem loans.

7

Loan Concentrations

As of December 31, 2011, there was no concentration of loans exceeding 10% of total loans that is not otherwise disclosed as a category of loans in the loan portfolio listing in Note 3 to the Consolidated Financial Statements incorporated by reference in Item 8 of this report.

Other Interest-Bearing Assets

As of December 31, 2011, there were no other interest-bearing assets requiring disclosure.

Summary of Loan Loss Experience

The following schedule presents a summary of activity in the allowance for loan losses for the periods shown and the percentage of net charge-offs during each period to average gross loans outstanding during the period.

(Dollars in thousands)	2011			2010			2009			2008			2007
Balance at January 1	$	4,729		$	4,322		$	3,600		$	3,600		$	3,569
Charge-offs:
Agricultural		45			—			—			—			33
Commercial and industrial		228			765			1,558			1,193			599
Consumer		361			444			535			567			635
Real estate – commercial		1,357			1,523			1,217			816			841
Real estate – construction		—			—			15			—			—
Real estate – residential		1,677			1,152			1,369			1,252			191
Total charge-offs		3,668			3,884			4,694			3,828			2,299
Recoveries:
Agricultural		10			—			—			—			3
Commercial and industrial		32			68			102			60			27
Consumer		217			230			246			252			254
Real estate – commercial		89			16			58			35			1
Real estate – construction		—			—			29			—			—
Real estate – residential		104			27			106			6			10
Total recoveries		452			341			541			353			295
Net charge-offs		3,216			3,543			4,153			3,475			2,004
Additions charged to operations (1)		3,700			3,950			4,875			3,475			2,035
Balance at December 31	$	5,213		$	4,729		$	4,322		$	3,600		$	3,600
Ratio of net charge-offs during the period to average loans outstanding during the period		1.01	%		1.12	%		1.30	%		1.06	%		0.61	%

(1) Additions to the allowance for loan losses charged to operations during the periods shown were based on management’s judgment after considering factors such as loan loss experience, evaluation of the loan portfolio, and prevailing and anticipated economic conditions. The evaluation of the loan portfolio is based upon various risk factors such as the financial condition of the borrower, the value of collateral and other considerations, which, in the opinion of management, deserve current recognition in estimating loan losses.

8

The following schedule presents an allocation of the allowance for loan losses to the various loan categories as of the years ended December 31.

(Dollars in thousands)

	2011		2010		2009		2008		2007
Agricultural	$	55	$	181	$	124	$	242	$	397
Commercial and industrial		609		641		735		616		873
Consumer		197		243		306		351		489
Real estate – commercial		2,299		1,729		1,546		996		886
Real estate – construction		34		2		3		5		10
Real estate – residential		1,847		1,554		1,590		1,124		881
Unallocated		172		379		18		266		64
Total allowance	$	5,213	$	4,729	$	4,322	$	3,600	$	3,600

The decrease in the allowance allocation to agricultural loans was due to the limited charge-off activity in this loan category. Although net charge-offs of commercial real estate loans were lower in 2011 than in the prior year, management believed that the continuing risk of loans secured by real estate warranted an increase in the allowance allocation. The allowance allocation to residential real estate loans was increased for the same reason and in recognition of the higher net charge-off level experienced in 2011.

Management periodically reviews the assumptions, loss ratios and delinquency trends in estimating the appropriate level of its allowance for loan losses and believes the unallocated portion of the total allowance is sufficient at December 31, 2011.

The following schedule presents the stratification of the loan portfolio by category, based on the amount of loans outstanding as a percentage of total loans for the respective years ended December 31.

	2011			2010			2009			2008			2007
Agricultural		12	%		9	%		10	%		7	%		8	%
Commercial and industrial		18			18			17			18			16
Consumer		6			5			5			5			5
Real estate – commercial		33			37			37			38			38
Real estate – construction		1			—			—			1			1
Real estate – residential		30			31			31			31			32
Total		100	%		100	%		100	%		100	%		100	%

Deposits

The following schedule presents the average deposit balances by category and the average rates paid thereon for the respective years.

(Dollars in thousands)

	2011				2010				2009
Noninterest-bearing demand	$	72,707	—		$	64,828	—		$	58,417	—
Interest-bearing demand		124,575	0.43	%		108,522	0.51	%		85,154	0.61	%
Savings		45,698	0.11	%		40,534	0.20	%		36,371	0.31	%
Certificates of deposit		153,494	1.54	%		160,390	2.05	%		167,065	2.94	%
Total	$	396,474	0.74	%	$	374,274	1.05	%	$	347,007	1.60	%

The following table illustrates the maturities of certificates of deposits issued in denominations of $100,000 or more as of December 31, 2011.

(Dollars in thousands)

Maturing in less than 3 months	$	28,624
Maturing in 3 to 6 months		14,383
Maturing in 6 to 12 months		18,225
Maturing in more than 12 months		16,323
Total	$	77,555

9

Short-Term Borrowings

Federal funds purchased by the Registrant are unsecured overnight borrowings from correspondent banks. Federal funds purchased are due the next business day. The table below provides additional information regarding these short-term borrowings:

(Dollars in thousands)

	2011			2010			2009
Outstanding balance at December 31	$	—		$	—		$	—
Average interest rate at December 31		—	%		—	%		—	%
Average balance during the year	$	3		$	4		$	531
Average interest rate during the year		0.72	%		0.26	%		0.38	%
Maximum month end balance during the year	$	6,120		$	165		$	4,417

Repurchase agreements include advances by Bank customers that are not covered by federal deposit insurance. These agreements are direct obligations of the Registrant and are secured by securities held in safekeeping at a correspondent bank. The table below provides additional information regarding these short-term borrowings:

(Dollars in thousands)

	2011			2010			2009
Outstanding balance at December 31	$	16,869		$	17,249		$	15,685
Average interest rate at December 31		0.30	%		0.40	%		0.71	%
Average balance during the year	$	15,815		$	14,269		$	13,419
Average interest rate during the year		0.36	%		0.51	%		0.86	%
Maximum month end balance during the year	$	17,249		$	17,249		$	15,685

Advances from the Federal Home Loan Bank (“FHLB”) with original repayment terms less than one year are considered short-term borrowings for the Registrant. These advances are secured by residential real estate mortgage loans and U.S. government agency securities. The advances have maturities ranging from 3 months to 11 months from the date of issue.

The table below provides additional information regarding these short-term borrowings:

(Dollars in thousands)

		000000			000000			000000
	2011			2010			2009
Outstanding balance at December 31	$	—		$	—		$	—
Average interest rate at December 31		—	%		—	%		—	%
Average balance during the year	$	1		$	—		$	6,923
Average interest rate during the year		0.49	%		—	%		0.56	%
Maximum month end balance during the year	$	—		$	—		$	15,500

There were no other categories of short-term borrowings whose average balance outstanding exceeded 30% of shareholders’ equity in 2011, 2010, or 2009.

Return on Equity and Assets

The following schedule presents the Registrant’s ratios for the years ended December 31:

	2011			2010			2009
Return on assets (net income divided by average total assets)		0.72	%		0.58	%		0.33	%
Return on equity (net income divided by average equity)		6.26	%		5.02	%		2.78	%
Dividend payout ratio (dividends declared per share divided by net income per share)		44.92	%		57.99	%		105.75	%
Equity to assets ratio (average equity divided by average total assets)		11.53	%		11.50	%		11.70	%

10

Item 1A. Risk Factors

The Registrant is subject to many risks and uncertainties. Although the Registrant seeks ways to manage these risks and develop programs to control risks to the extent that management can control them, the Registrant cannot predict the future. Actual results may differ materially from management’s expectations. Some of these significant risks and uncertainties are discussed below. The risks and uncertainties described below are not the only ones that the Registrant faces. Additional risks and uncertainties of which the Registrant is unaware, or that it currently does not consider to be material, also may become important factors that affect the Registrant and its business. If any of these risks were to occur, the Registrant’s business, financial condition or results of operations could be materially and adversely affected.

Investments in the Registrant’s common stock involve risk.

The market price of the Registrant’s common stock may fluctuate significantly in response to a number of factors, including:

• Variations in quarterly or annual operating results

• Changes in interest rates

• New developments in the banking industry

• Regulatory actions

• Volatility of stock market prices and volumes

• Changes in market valuations of similar companies

• New litigation or contingencies or changes in existing litigation or contingencies

• Changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other regulatory agencies

• Rumors or erroneous information

• Credit and capital availability

Asset quality could be less favorable than expected.

A significant source of risk for the Registrant arises from the possibility that losses will be sustained because borrowers, guarantors and related parties may fail to perform in accordance with the terms of their loan agreements. Most loans originated by the Registrant are secured, but some loans are unsecured depending on the nature of the loan. With respect to secured loans, the collateral securing the repayment of these loans includes a wide variety of real and personal property that may be insufficient to cover the obligations owed under such loans. Collateral values may be adversely affected by changes in prevailing economic, environmental and other conditions, including declines in the value of real estate, changes in interest rates, changes in monetary and fiscal policies of the federal government, terrorist activity, environmental contamination and other external events. In addition, collateral appraisals that are out of date or that do not meet industry recognized standards may create the impression that a loan is adequately collateralized when in fact it is not.

General economic conditions in the state of Michigan could be less favorable than expected.

The Registrant is affected by general economic conditions in the United States, although most directly within Michigan. A further economic downturn within Michigan could negatively impact household and corporate incomes. This impact may lead to decreased demand for both loan and deposit products and increase the number of customers who fail to pay interest or principal on their loans.

Volatility and disruptions in the functioning of the financial markets and related liquidity issues could continue or worsen and, therefore, may adversely impact the Registrant’s business, financial condition and results of operations.

The financial markets have been experiencing volatility and disruption in recent periods. The impact of this situation, together with concerns regarding the financial strength of financial institutions, has led to distress in financial markets and issues relating to liquidity among financial institutions. As a result of concern about the

11

stability of the financial markets generally, the resulting credit availability issues, lack of confidence in the financial sector, increased volatility in the financial markets and reduced business activity could have a material adverse effect on the Registrant’s ability to access capital and manage liquidity. If current levels of financial market volatility and disruption continue or worsen, there can be no assurance that the Registrant’s business, financial condition and results of operations will not be materially and adversely impacted. There can be no assurances that recently enacted legislation, such as the Emergency Economic Stabilization Act of 2008, and actions taken by the United States Department of the Treasury and the FDIC for the purpose of stabilizing the financial markets will achieve their intended effects, and the impact of such legislation and regulatory programs on the Registrant cannot reliably be determined at this time.

If the Registrant does not adjust to changes in the financial services industry, its financial performance may suffer.

The Registrant’s ability to maintain its financial performance and return on investment to shareholders will depend in part on its ability to maintain and grow its core deposit customer base and expand its financial services to its existing customers. In addition to other banks, competitors include credit unions, securities dealers, brokers, mortgage bankers, investment advisors and finance and insurance companies. The increasingly competitive environment is, in part, a result of changes in the economic environment within the state of Michigan, regulation, changes in technology and product delivery systems and the accelerating pace of consolidation among financial service providers. New competitors may emerge to increase the degree of competition for the Registrant’s customers and services. Financial services and products are also constantly changing. The Registrant’s financial performance will also depend in part upon customer demand for the Registrant’s products and services and the Registrant’s ability to develop and offer competitive financial products and services.

Changes in interest rates could reduce the Registrant’s income and cash flow.

The Registrant’s income and cash flow depends, to a great extent, on the difference between the interest earned on loans and securities, and the interest paid on deposits and other borrowings. Market interest rates are beyond the Registrant’s control, and they fluctuate in response to general economic conditions and the policies of various governmental and regulatory agencies including, in particular, the Federal Reserve Board. Changes in monetary policy, including changes in interest rates and interest rate relationships, will influence the origination of loans, the purchase of investments, the generation of deposits and the rate received on loans and securities and paid on deposits and other borrowings.

Additional risks and uncertainties could have a negative effect on financial performance.

Additional factors could have a negative effect on the financial performance of the Registrant and the Registrant’s common stock. Some of these factors are financial market conditions, changes in financial accounting and reporting standards, new litigation or changes in existing litigation, regulatory actions and losses.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The offices of the Bank and Insurance Agency as of February 28, 2012, were as follows:

Registrant’s, Bank’s and Insurance Agency’s main office:

109 East Division, Sparta, Michigan

Office is owned by the Bank and comprises 24,000 square feet.

Bank’s branch office:

416 West Division, Sparta, Michigan

Office is leased by the Bank and comprises 3,000 square feet.

12

Bank’s branch office:

4170—17 Mile Road, Cedar Springs, Michigan

Office is owned by the Bank and comprises 3,000 square feet.

Bank’s branch office:

6795 Courtland Drive, Rockford, Michigan

Office is owned by the Bank and comprises 2,400 square feet.

Bank’s branch office:

5050 Alpine Avenue NW, Comstock Park, Michigan

Office is owned by the Bank and comprises 2,400 square feet.

Bank’s branch office:

450 West Muskegon, Kent City, Michigan

Office is owned by the Bank and comprises 27,300 square feet.

Bank’s branch office:

3069 Slocum Road, Ravenna, Michigan

Office is owned by the Bank and comprises 4,800 square feet.

Bank’s branch office:

5475 East Apple Avenue, Muskegon, Michigan

Office is owned by the Bank and comprises 4,800 square feet.

Bank’s branch office:

661 West Randall, Coopersville, Michigan

Office is owned by the Bank and comprises 4,800 square feet.

Bank’s branch office:

10 West Main Street, Grant, Michigan

Office is owned by the Bank and comprises 4,800 square feet.

Bank’s branch office:

246 West River Valley Drive, Newaygo, Michigan

Office is owned by the Bank and comprises 2,600 square feet.

Bank’s branch office:

47 South Charles Street, White Cloud, Michigan

Office is leased by the Bank and comprises 1,800 square feet.

Bank’s branch office:

1423 West Main Street, Fremont, Michigan

Office is owned by the Bank and comprises 1,600 square feet.

The Registrant operates its business at the main office of the Bank. The Registrant did not own any properties as of February 29, 2012. The Registrant, Bank and Insurance Agency believe that their offices are suitable and adequate for their future needs and are in good condition. The Registrant’s management believes all offices are adequately covered by property insurance.

Item 3. Legal Proceedings

As of December 31, 2011, there are no significant pending legal proceedings to which the Registrant or the Bank is a party or to which any of their properties are subject, except for legal proceedings arising in the ordinary course of business. In the opinion of management, pending legal proceedings will not have a material effect on the consolidated financial condition of the Registrant.

Item 4. Mine Safety Disclosures

Not applicable.

13

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The information under the caption “Stock Information” on pages 1 and 2 of the Registrant’s Annual Report to Shareholders for the year ended December 31, 2011, is incorporated herein by reference.

On October 27, 2011, the Registrant issued 922 shares of common stock to its directors pursuant to the Directors’ Stock Purchase Plan for an aggregate cash price of $10,000. 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

There were no issuer purchases of equity securities during the three-month period ended December 31, 2011.

On July 21, 2004, the Board of Directors authorized the Registrant to repurchase 50,000 shares under a publicly announced repurchase plan. The Board of Directors authorized an additional repurchase plan on July 26, 2007 to buy back 100,000 shares. There is no stated expiration date.

Item 6. Selected Financial Data

The information under the caption “Selected Financial Data” on page 3 of the Registrant’s Annual Report to Shareholders for the year ended December 31, 2011, is incorporated herein by reference.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The information under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” including all subheadings, on pages 4 through 17, inclusive, of the Registrant’s Annual Report to Shareholders for the year ended December 31, 2011, is incorporated herein by reference.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The information under the subheading “Liquidity and Interest Rate Risk” under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages 15 through 17, inclusive, of the Registrant’s Annual Report to Shareholders for the year ended December 31, 2011, is incorporated herein by reference.

Item 8. Financial Statements and Supplementary Data

The Report of Independent Registered Public Accounting Firm, Consolidated Financial Statements, and Notes to Consolidated Financial Statements on pages 19 through 49, inclusive, of the Registrant’s Annual Report to Shareholders for the year ended December 31, 2011, are incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. 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 December 31, 2011 that has materially affected, or that is reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

14

Management’s Report on Internal Control over Financial Reporting on page 18 of the Registrant’s Annual Report to Shareholders for the year ended December 31, 2011 is here incorporated by reference.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information under the captions “ChoiceOne’s Board of Directors and Executive Officers,” “Related Matters – Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance” in the Registrant’s Definitive Proxy Statement for the Annual Meeting of Shareholders to be held April 25, 2012, is incorporated herein by reference.

The Registrant has adopted a Code of Ethics for Executive Officers and Senior Financial Officers, which applies to the Chief Executive Officer and the Chief Financial Officer, as well as all other senior financial and accounting officers. The Code of Ethics is posted on the Registrant’s website at “www.choiceone.com.” The Registrant intends to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding an amendment to, or a waiver from, a provision of the Code of Ethics by posting such information on its website at “www.choiceone.com.”

Item 11. Executive Compensation

The information under the captions “Executive Compensation” in the Registrant’s Definitive Proxy Statement for the Annual Meeting of Shareholders to be held April 25, 2012, is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information under the caption “Ownership of ChoiceOne Common Stock” in the Registrant’s Definitive Proxy Statement for the Annual Meeting of Shareholders to be held April 25, 2012, is incorporated herein by reference.

The following table presents information regarding the equity compensation plans both approved and not approved by shareholders at December 31, 2011:

	Number of securities to be  issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)		(b)		(c)
Equity compensation plans approved by security holders		46,656	$	16.62		149,498
Equity compensation plans not approved by security holders		—		—		8,198
Total		46,656	$	16.62		157,696

Equity compensation plans approved by security holders include the Amended and Restated Executive Stock Incentive Plan and the Employee Stock Purchase Plan.

Shareholders at the Registrant’s 2002 Annual Meeting approved the Amended and Restated Executive Stock Incentive Plan. Key employees of the Registrant and its subsidiaries, as the Personnel and Benefits Committee of the Board of Directors may select from time to time, are eligible to receive awards under this Plan. Incentive awards may

15

be stock options, stock appreciation rights or stock awards. The Plan provides for a maximum of 145,491 shares of the Registrant’s common stock, subject to adjustments for certain changes in the capital structure of the Registrant. New awards for up to 98,535 shares may be made under this Plan.

The number of shares available for issuance under the Plan is equal to the number determined by the following formula: (a) for the initial plan year, 5% of the total number of shares of common stock outstanding at the time the Plan became effective; plus (b) in each subsequent plan year, an additional number of shares of common stock not to exceed 2% of the number of shares of common stock outstanding as reported in the Registrant’s Annual Report on Form 10-K for the fiscal year ending immediately before such plan year such that at the beginning of each plan year after the initial plan year there shall be available, in addition to any amount of shares remaining from the 5% authorization for the initial plan year, a minimum number of shares equal to 2% of the number of shares of common stock outstanding; plus (c) there shall be carried forward and available for additional awards certain shares that are either unused, canceled or surrendered in connection with incentive awards.

Shareholders at the 2002 Annual Meeting approved the Employee Stock Purchase Plan. This Plan allows employees to purchase the Registrant’s common stock at up to a 15% discount from the average bid price for the Registrant’s common stock. Employees who elect to participate in the plan can purchase shares of the Registrant’s common stock on a quarterly basis. The Plan provides for a maximum of 55,126 shares of the Registrant’s common stock, subject to adjustments for certain changes in the capital structure of the Registrant. Shareholders at the 2011 Annual Meeting approved an Amended and Restated Employee Stock Purchase Plan. The new plan made an additional 50,000 available for purchase providing a total of 105,126 shares under the plan. As of December 31, 2011, new issuances for up to 50,663 shares may be made under the plan.

Equity compensation plans not approved by security holders consist of the Directors’ Stock Purchase Plan. The Plan is designed to provide directors of the Registrant the option of receiving their fees in the Registrant’s stock. Directors who elect to participate in the Plan may elect to contribute to the Plan twenty-five, fifty, seventy-five or one hundred percent of their board of director fees and one hundred percent of their director committee fees earned as directors of the Registrant. Contributions to the Plan are made by the Registrant on behalf of each electing participant. Plan participants may terminate their participation in the Plan at any time by written notice of withdrawal to the Registrant. Participants will cease to be eligible to participate in the Plan when they cease to serve as directors of the Registrant. Shares are distributed to participants on a quarterly basis. The Plan provides for a maximum of 72,978 shares of the Registrant’s common stock, subject to adjustments for certain changes in the capital structure of the Registrant. New issuances for up to 8,198 shares may be made under this Plan.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information under the captions “Related Matters—Transactions with Related Persons” and “Corporate Governance” in the Registrant’s Definitive Proxy Statement for the Annual Meeting of Shareholders to be held April 25, 2012, is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

The information under the caption “Related Matters—Independent Certified Public Accountants” in the Registrant’s Definitive Proxy Statement for the Annual Meeting of Shareholders to be held April 25, 2012, is incorporated herein by reference.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)    (1) Financial Statements. The following financial statements and independent auditors’ reports are filed as part of this report:

Consolidated Balance Sheets at December 31, 2011 and 2010.

Consolidated Statements of Income for the years ended December 31, 2011, 2010, and 2009.

16

Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31,

2011, 2010, and 2009.

Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010, and 2009.

Notes to Consolidated Financial Statements.

Report of Independent Registered Public Accounting Firm dated March 28, 2012.

The consolidated financial statements, notes to consolidated financial statements and independent auditors’ report dated March 28, 2012 listed above are incorporated by reference in Item 8 of this report from the Registrant’s Annual Report to Shareholders for the year ended December 31, 2011.

(2) Financial Statement Schedules. None.

(b) Exhibits. The following exhibits are filed as part of this report:

Exhibit	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, 2008. 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-K Annual Report for the year ended December 31, 2008. Here incorporated by reference.
4	Advances, Pledge and Security Agreement between ChoiceOne Bank and the Federal Home Loan Bank of Indianapolis. Previously filed as an exhibit to the Registrant’s Form 10-K Annual Report for the year ended December 31, 2007. Here incorporated by reference.
10.1	Employment Agreement with James A. Bosserd. (1)
10.2	Amended and Restated Executive Stock Incentive Plan.
10.3	Directors’ Stock Purchase Plan. (1). Previously filed as an exhibit to the Registrant’s Form 10-K Annual Report for the year ended December 31, 2010. Here incorporated by reference.
10.4	Former Valley Ridge Executive Employee Salary Continuation Agreements, as amended. (1) Previously filed as an exhibit to the Registrant’s Form 10-K Annual Report for the year ended December 31, 2007. Here incorporated by reference.
10.5	Former Valley Ridge Directors’ Deferred Compensation Plan and Agreement. (1) Previously filed as an exhibit to the Registrant’s Form 10-K Annual Report for the year ended December 31, 2006. Here incorporated by reference.
13	Annual Report to Shareholders for the year ended December 31, 2011.
21	Subsidiaries of the Registrant.
23	Consent of Independent Registered Public Accounting Firm for fiscal years ended December 31, 2011, 2010, and 2009.
24	Powers of Attorney.
31.1	Certification of Chief Executive Officer.
31.2	Certification of Treasurer.

17

32	Certification pursuant to 18 U.S.C. § 1350.
101.1*	Interactive Data File.

* As provided in Rule 406T of Regulation S-T, this information shall not be deemed filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Exchange Act or otherwise subject to liability under those sections.

(1) This agreement is a management contract or compensation plan or arrangement to be filed as an exhibit to this Form 10-K.

Copies of any exhibits will be furnished to shareholders upon written request. Requests should be directed to: Thomas L. Lampen, Treasurer, ChoiceOne Financial Services, Inc., 109 East Division, Sparta, Michigan, 49345.

18

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.
By:	/s/    James A. Bosserd	March 28, 2012
	James A. Bosserd
	President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

/s/    James A. Bosserd	President and Chief Executive Officer and	March 28, 2012
James A. Bosserd	Director (Principal Executive Officer)
/s/    Thomas L. Lampen	Treasurer (Principal Financial and	March 28, 2012
Thomas L. Lampen	Accounting Officer)
*/s/    Stuart Goodfellow	Chairman of the Board and Director	March 28, 2012
Stuart Goodfellow
*/s/    Jerome Arends	Director	March 28, 2012
Jerome Arends
*/s/    Frank G. Berris	Director	March 28, 2012
Frank G. Berris
*/s/    K. Timothy Bull	Director	March 28, 2012
K. Timothy Bull
*/s/    William F. Cutler, Jr.	Director	March 28, 2012
William F. Cutler, Jr.
*/s/    Lewis G. Emmons	Director	March 28, 2012
Lewis G. Emmons
*/s/    Gary Gust	Director	March 28, 2012
Gary Gust
*/s/    Paul L. Johnson	Director	March 28, 2012
Paul L. Johnson
*/s/    Dennis C. Nelson	Director	March 28, 2012
Dennis C. Nelson
*/s/    Nels W. Nyblad	Director	March 28, 2012
Nels W. Nyblad

19

*/s/    Roxanne M. Page	Director	March 28, 2012
Roxanne M. Page
*/s/    Donald VanSingel	Director	March 28, 2012
Donald VanSingel

*By	/s/    Thomas L. Lampen
	Attorney-in-Fact

20

EXHIBIT INDEX

Exhibit	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, 2008. 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-K Annual Report for the year ended December 31, 2008. Here incorporated by reference.
4	Advances, Pledge and Security Agreement between ChoiceOne Bank and the Federal Home Loan Bank of Indianapolis. Previously filed as an exhibit to the Registrant’s Form 10-K Annual Report for the year ended December 31, 2007. Here incorporated by reference.
10.1	Employment Agreement with James A. Bosserd. (1)
10.2	Amended and Restated Executive Stock Incentive Plan.
10.3	Directors’ Stock Purchase Plan. (1). Previously filed as an exhibit to the Registrant’s Form 10-K Annual Report for the year ended December 31, 2010. Here incorporated by reference.
10.4	Former Valley Ridge Executive Employee Salary Continuation Agreements, as amended. (1) Previously filed as an exhibit to the Registrant’s Form 10-K Annual Report for the year ended December 31, 2007. Here incorporated by reference.
10.5	Former Valley Ridge Directors’ Deferred Compensation Plan and Agreement. (1) Previously filed as an exhibit to the Registrant’s Form 10-K Annual Report for the year ended December 31, 2006. Here incorporated by reference.
13	Annual Report to Shareholders for the year ended December 31, 2011.
21	Subsidiaries of the Registrant.
23	Consent of Independent Registered Public Accounting Firm for fiscal years ended December 31, 2011, 2010, and 2009.
24	Powers of Attorney.
31.1	Certification of Chief Executive Officer.
31.2	Certification of Treasurer.
32	Certification pursuant to 18 U.S.C. § 1350.
101.1*	Interactive Data File.

* As provided in Rule 406T of Regulation S-T, this information shall not be deemed filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Exchange Act or otherwise subject to liability under those sections.

(1) This agreement is a management contract or compensation plan or arrangement to be filed as an exhibit to this Form 10-K.

EX-10.1

EXHIBIT 10.1

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT between CHOICEONE FINANCIAL SERVICES, INC., a Michigan Corporation (the “Company”), and JAMES A. BOSSERD, an individual residing in Sparta, Michigan (the “Employee”) is dated November 1, 2006 (the “Effective Date”) and completely amends and restates that employment agreement between the parties dated March 23, 2001.

WHEREAS, the Company has retained the services of the Employee as a senior executive officer, and the Employee has accepted such employment; and

WHEREAS, the parties have operated in an employment relationship for several years; and

WHEREAS, the parties desire to enter into this Agreement, which is intended to set forth in its entirety the terms and conditions of the employment relationship between the Company and the Employee; and

WHEREAS, the Board of Directors of the Company has approved this Agreement and authorized the Chairman of the Board to enter into this Agreement with the Employee;

THEREFORE, THE PARTIES AGREE as follows:

1. Employment. The Employee is employed to render such executive services to the Company as may from time to time be reasonably directed by the Company’s Board of Directors. Among his other duties, it is contemplated that he will serve as the President and Chief Executive Officer of the Company and the Company’s subsidiary, ChoiceOne Bank (the “Subsidiary Bank”). Employee will have primary responsibility for the operation of the Company and the Subsidiary Bank. Employee shall devote his full time, best efforts and skill to the affairs of the Company. Employee will have no outside interests, business or otherwise, which interfere or conflict with his duties under this Agreement.

2. Compensation. The Company agrees to pay the Employee during the Term (defined below) of this Agreement a base salary in the sum of at least One Hundred Sixty Thousand Dollars ($160,000) per annum (the “Minimum Salary”), provided, however, that any salary (other than bonuses provided for in Section 4 of this Agreement) paid to the Employee by any subsidiary of the Company shall be deemed to reduce the salary paid to the Employee pursuant to this Section 2. The salary provided in this Section shall be payable in accordance with the periodic payment procedures for all employees of the Company. The Employee’s salary shall be reviewed by the Personnel and Benefits Committee of the Board of Directors not less often than annually beginning on the date one year after the Effective Date (the “First Anniversary Date”) and may be increased (but not decreased) from time to time in such amounts as the Board in its discretion may determine; any such increased salary shall become the new Minimum Salary. The Employee’s salary shall be subject to the usual payroll taxes and withholding required with respect to compensation paid by a corporation to an employee.

-1-

3. Directors’ Fees. The Employee shall be paid the regular directors’ fees for attending meetings of the Board of Directors of the Company, but not meetings of committees of the Board. The Employee shall also be paid the regular directors’ fees for attending meetings of the Board of Directors of the Subsidiary Bank, but not meetings of committees thereof.

4. Discretionary Bonuses. In addition to the salary provided for in Section 2, the Employee shall be entitled to participate in discretionary bonuses as may be authorized and declared from time to time by the Board of Directors of the Company or the Subsidiary Bank. No other compensation provided for in this Agreement shall be deemed a substitute for the Employee’s right to participate in such bonuses when and as declared by the Board of Directors.

5. Retirement, Employee Benefit Plans, and Fringe Benefits.

(a) The Employee shall be entitled to participate in any plan of the Company or the Subsidiary Bank relating to pension, thrift, deferred profit-sharing, group life insurance, medical coverage, education, or other retirement or employee benefits that the Company or the Subsidiary Bank may adopt for the benefit of its executive employees.

(b) The Employee shall be eligible to participate in any other fringe benefits which may be, or may later become, applicable to the Company’s or the Subsidiary Bank’s executive or salaried employees, including with respect to the Employee, but not limited to, the following: health plans; insurance plans; an automobile allowance of Six Hundred Dollars ($600.00) per month; reimbursement for reasonable travel, entertainment and other expenses in rendering services for, on behalf of or for the benefit of the Company or the Subsidiary Bank; the payment of reasonable expenses for attending annual and periodic meetings of trade associations; and any other benefits which are commensurate with the responsibilities and functions to be performed by the Employee under this Agreement.

6. Term. The initial term of this Agreement shall be a period of three years commencing on the Effective Date, subject to earlier termination as provided in this Agreement. Beginning on the first anniversary of the Effective Date, and on each anniversary thereafter, the term of this Agreement shall be extended for a period of one year in addition to the then-remaining term, unless the Company has given notice to the Employee in writing at least 90 days prior to such anniversary that the term of this Agreement shall not be extended further; if such notice is given, this Agreement will expire at the end of the then-remaining term. References in this Agreement to the “Term” of this Agreement shall refer to both such initial term and such extended terms.

7. Non-Competition. In exchange for the promises made by Company in this Agreement, Employee agrees that, during the Non-Competition Period (defined below), he will not engage in any Prohibited Activity, whether as an employee, agent, consultant, representative, joint-venturer, owner or otherwise. The “Non-Competition Period” shall begin with the first day of this Agreement and continue as follows:

-2-

In the event that the Employee’s employment is terminated:		then the Non-Competition Period shall last until:
(a)	by the Company for Cause,	the expiration of the then remaining Term.
(b)	by the Employee prior to a Change in Control of the Company for any reason,	the expiration of the then remaining Term.
(c)	by the Employee after a Change in Control of the Company without a Good Reason,	the expiration of the then remaining Term.
(d)	by the Company or the Employee for any other reason,	the Employee’s last day of employment for the Company.

“Prohibited Activity” means directly or indirectly (a) soliciting or offering services or products competitive to those offered by or through the Company or any of its affiliates to any Customer; or (b) inducing any employee of the Company or any of its affiliates to leave his or her employment. “Customer” means any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization or other entity who, at any time while the Employee was employed by the Company, (a) was a customer of the Company; or (b) was identified by the Company as a potential customer.

8. Standards. The Employee shall perform his duties under this Agreement in accordance with reasonable standards established from time to time by the Board of Directors of the Company.

9. Vacations. The Employee shall be entitled, without loss of pay, to absent himself voluntarily from the performance of his employment under this Agreement, all such voluntary absences to count as vacation or personal time, provided that:

(a) The Employee shall be entitled to twenty-six (26) personal and vacation days each year. Other than the length of vacation and personal time awarded, the Company’s Vacation/Personal Days Policy will apply to the Employee.

(b) The timing of vacations shall be scheduled in a reasonable, mutually agreeable manner.

10. Termination of Employment.

(a) The Employee’s employment under this Agreement may be terminated at any time by the Board of Directors of the Company for “Cause” (as defined below). The Employee shall have no right to receive severance pay or any other remuneration whatsoever under this Agreement for any period after voluntary termination without “Good Reason” (as defined below) or termination for Cause.

-3-

For purposes of this Agreement, termination for “Cause” shall mean termination of employment for only the following reasons:

(i) Willful misconduct materially adverse to the Company or the Subsidiary Bank;

(ii) Willful breach of a fiduciary duty involving personal profit;

(iii) Willful violation of any law, rule, or regulation materially relating to the operation of the Company or the Subsidiary Bank;

(iv) The order of any court or supervising agency with jurisdiction over the affairs of the Company or the Subsidiary Bank; or

(v) The Employee’s intentional violation of any material provision of this Agreement, if Employee fails to cure the breach within a reasonable time after written notice from the Company’s Board of Directors informing him of the breach.

        For purposes of this Agreement, no act or failure to act on the Employee’s behalf shall be considered “willful” or “intentional” unless done, or admitted to be done, by him not in good faith and unless he knew or should have known that his action or omission was not in, or was opposed to, the best interests of the Company or the Subsidiary Bank; provided, that any act or omission to act on the Employee’s behalf in reliance upon an opinion of counsel to the Company shall not be deemed to be willful or intentional. The Employee shall not be deemed to have been terminated for cause unless or until there shall have been delivered to him a copy of a certification of a majority of the non-officer members of the Company Board of Directors finding that, in the good faith opinion of such majority, the employee was guilty of conduct deemed to be cause and specifying the details thereof, after reasonable notice to the Employee and an opportunity for him, together with his counsel, to be heard before such majority. No such determination of the Board shall affect Employee’s right to determination through the legal system of whether there was in fact cause for termination.

(b) The Employee may terminate his employment at any time upon ninety (90) days’ written notice to the Company or upon such shorter period as may be agreed upon between the Employee and the Board of Directors of the Company. In the event of such termination without Good Reason, the Company shall be obligated only to continue to pay the Employee’s salary and provide the other compensation and benefits provided by this Agreement up to the date of the termination.

(c) The Employee may terminate his employment with the Company for “Good Reason” after a Change in Control of the Company, which shall mean the occurrence of any of the following events without the Employee’s consent:

-4-

(i) A material demotion or other adverse change made by the Company in the Employee’s status or position as a senior executive officer of the Company or the Subsidiary Bank;

(ii) The assignment to the Employee of any duties or responsibilities which are materially inconsistent with such status or position, or a material reduction in the duties and responsibilities previously exercised by the Employee;

(iii) The imposition of any requirement, whether by relocation of the Company’s offices or otherwise, that the Employee perform his normal day-to-day duties and responsibilities outside of an area within a thirty (30) mile radius of Sparta, Michigan;

(iv) Failure of the Company to elect the Employee as Chief Executive Officer of the Company or as Chief Executive Officer and a director of the Subsidiary Bank; or

(v) Material breach by the Company of any material provision of this Agreement, if the Company fails to cure the breach within a reasonable time after Employee has given the Company’s Board of Directors written notice of the breach.

Before terminating his employment for Good Reason pursuant to this Section 9(c), the Employee shall give written notice to the Company’s Board of Directors of the act or omission constituting Good Reason, within 60 days after the occurrence of such act or omission. If the Board of Directors promptly corrects such act or omission, and takes reasonable measures to prevent its recurrence, Employee shall not be entitled to terminate the employment with Good Reason. Otherwise, Employee may terminate the employment for Good Reason within 60 days after such notice to the Board of Directors. If Employee fails to give notice as provided above, Employee may not terminate the Employment for Good Reason on account of such act or omission.

(d) If the Employee’s employment is terminated by the Employee for Good Reason after a Change in Control of the Company or by the Company without Cause, the Employee shall be entitled to continuation of his salary (provided in Section 2) and benefits (provided in Section 5) until the end of the term of this Agreement as if termination of his employment had not occurred.

    If the termination by the Company occurs prior to a Change in Control of the Company, then Employee must use his reasonable efforts to procure new employment. Any new compensation and/or benefits Employee receives from such new employment, including self-employment, shall reduce the payments or benefit obligations due under this Section.

-5-

        If the termination by the Company occurs after a Change in Control of the Company, then payment of salary and continuation of benefits as provided in this Section shall continue regardless of whether the Employee finds new employment following such termination, and without reduction due to any earnings and/or benefits received by Employee from any other employment or self employment. If continuation of a specific benefit is not possible under applicable law, Employee shall be provided with an equal substitute benefit or, if that is not possible, with cash in lieu of such benefit; such substitute benefit or cash shall be structured or supplemented as necessary to place Employee in the same economic position, after all applicable taxes, as if the benefit had been continued.

        Notwithstanding the preceding, if, at the time the payments under this Section would commence, Employee is a “specified employee” within the meaning of IRC Regulation Section 1.409A-1(i), no payment may be made under this Section before the date that is six months after Employee’s separation from service. Payments to which Employee would otherwise have been entitled under this Section during that six months will be accumulated and paid on the first day of the seventh month following the date of Employee’s separation from service.

        If any payment to or benefit continuation for the Employee pursuant to Agreement constitutes a “parachute payment” under Internal Revenue Code Section 280(G) and, when added to all other payments to the Employee that are “parachute payments” would result in “excess parachute payments” to Employee (as defined under Internal Revenue Code Section 280(G)) being nondeductible by the Corporation under Internal Revenue Code Section 280(G), then the payments and benefit continuation provided for under this Section shall be reduced (but not below 0) or delayed until there are no such excess parachute payments. The amount of any reduction or delay shall be determined by the Company’s certified public accountants, in consultation with the Employee, and to the extent possible Employee shall have the option to choose which payments or benefits shall be reduced or delayed.

(e) In the event of the death of the Employee while still employed under this Agreement, the Employee’s estate or beneficiary shall not be entitled to salary and benefit continuation under this Section, but shall be entitled to receive the salary due the Employee through the last day of the calendar month in which his death shall have occurred, plus such other benefits as shall have accrued under this Agreement up to the date of death.

(f) A Change in Control shall be deemed to have occurred as of the first day that there is a change in the ownership, the effective control, or the ownership of a substantial portion of the assets of the Company within the meaning of IRC Proposed Regulation Section 1.409A-3(g)(5), as amended.

-6-

        The parties agree that the strategic merger of equals between ChoiceOne Financial Services, Inc. and Valley Ridge Financial Corp. does not constitute a Change in Control under this Agreement and does not trigger any payments required by this Section and the Employee hereby waives any right to any such payment as a result of that transaction.

(g) If the Employee shall become and remain disabled to the extent that he is unable to perform his duties under this Agreement for a continuous period of six months or more, the Board of Directors of the Company may terminate Employee’s employment without salary or benefit continuation under Section 9(d). For purposes of this Agreement, the Employee shall be considered disabled if he is prevented from performing his essential duties under this Agreement by (i) accidental bodily injury; (ii) sickness; (iii) mental illness; or (iv) substance abuse.

11. Attorney Fees. In the event that the Company exercises its right of termination for Cause, but it is determined by a court of competent jurisdiction or by an arbitrator that cause did not exist for such termination, or if in any event it is determined by any such court or arbitrator that the Company or the Subsidiary Bank has failed to make timely payment of any amounts owed to the Employee under this Agreement, the Employee shall be entitled to reimbursement for all reasonable costs, including attorneys’ fees, incurred in challenging such termination or collecting such amounts. Such reimbursement shall be in addition to any rights to which the Employee is otherwise entitled under this Agreement.

12. No Assignment.

(a) This Agreement is personal to each of the parties hereto, and neither party may assign or delegate any of its rights or obligations hereunder without first obtaining the written consent of the other party; provided, however, that the Company may assign this Agreement to any subsidiary of the Company and shall require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company or the Subsidiary Bank, by an assumption agreement in form and substance satisfactory to the Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. Failure of the Company to obtain such an assumption agreement prior to the effectiveness of any such succession or assignment shall be a breach of this Agreement and shall entitle the Employee to compensation from the Company in the same amount and on the same terms as the compensation pursuant to Section 9(d). For purposes of implementing the provisions of this Section 11(a), the date on which any such succession becomes effective shall be deemed the date of termination.

-7-

(b) This Agreement and all rights of the Employee hereunder shall inure to the benefit of and be enforceable by the Employee’ s personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Employee should die while any amounts would still be payable to the Employee under this Agreement if the Employee had continued to live (including but not limited to salary and benefit continuation to which Employee becomes conditioned under Section 9(d) as a result of a covered termination of the employment before Employee’ s death), all such amounts, unless otherwise provided in this Agreement, shall be paid in accordance with the terms of this Agreement to the Employee’ s devisee, legatee or other designee or, if there is no such designee, to the Employee’ s estate.

13. Other Contracts. All other prior agreements regarding conditions of employment, whether written or oral, are hereby superseded by this Agreement.

14. Notices. Any notices under this Agreement shall be deemed given when in writing and delivered personally or sent by certified mail, postage prepaid, to the last known address of the party to whom notice is given. If sent by mail, notice shall be deemed given on the second day after mailing.

15. Amendments. No amendments or additions to this Agreement shall be binding unless in writing and signed by both parties, except as herein otherwise provided.

16. Paragraph Headings. The paragraph headings used in this Agreement are included solely for convenience and shall not affect or be used in connection with the interpretation of this Agreement.

17. Severability. The provisions of this Agreement shall be deemed severable, and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.

18. Governing Law. Agreement shall be governed by the laws of the United States of America and the State of Michigan, without regard to conflict of laws principles.

19. Remedies/Arbitration. Any controversy or claim arising out of, or relating to this Agreement, or the breach thereof, shall be settled by arbitration before a single arbitrator in a hearing to be held in Kent County, Michigan, in accordance with the then existing rules of the American Arbitration Association, and judgment upon the award rendered may be entered in any court having jurisdiction thereof.

-8-

IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above written.

CHOICEONE FINANCIAL SERVICES, INC.
By	/s/ Jon E. Pike
	Jon E. Pike, Chairman of the Board
	Company
	/s/ James A. Bosserd
	James A. Bosserd
	Employee

-9-

EX-10.2

EXHIBIT 10.2

CHOICEONE FINANCIAL SERVICES, INC.

AMENDED AND RESTATED EXECUTIVE STOCK INCENTIVE PLAN

SECTION 1

Establishment of Plan; Purpose of Plan

1.1 Establishment of Plan. The Company hereby establishes the AMENDED AND RESTATED EXECUTIVE STOCK INCENTIVE PLAN (the “Plan”) for its corporate and Subsidiary officers and other key employees. The Plan permits the grant and award of Stock Options, Stock Appreciation Rights and Stock Awards.

1.2 Purpose of Plan. The purpose of the Plan is to provide officers and key management employees of the Company and its Subsidiaries with an increased incentive to make significant and extraordinary contributions to the long-term performance and growth of the Company and its Subsidiaries, to join the interests of officers and key employees with the interests of the Company’s shareholders through the opportunity for increased stock ownership and to attract and retain officers and key employees of exceptional abilities. The Plan is further intended to provide flexibility to the Company in structuring long-term incentive compensation to best promote the foregoing objectives.

SECTION 2

Definitions

The following words have the following meanings unless a different meaning is plainly required by the context:

2.1 “Act” means the Securities Exchange Act of 1934, as amended.

2.2 “Board” means the Board of Directors of the Company.

2.3 “Change in Control,” unless otherwise defined in an Incentive Award agreement, means an occurrence of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A issued under the Act. Without limiting the inclusiveness of the definition in the preceding sentence, a Change in Control of the Company shall be deemed to have occurred as of the first day that any one or more of the following conditions is satisfied: (a) any Person is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company’s then outstanding securities; (b) the failure at any time of the Continuing Directors to constitute at least a majority of the Board; or (c) any of the following occur: (i) any merger or consolidation of the Company, other than a merger or consolidation in which the voting securities of the Company immediately prior to the merger or consolidation continue to represent (either by remaining outstanding or being converted into securities of the surviving entity) 60% or more of the combined voting power of the Company or surviving entity

1

immediately after the merger or consolidation with another entity; (ii) any sale, exchange, lease, mortgage, pledge, transfer or other disposition (in a single transaction or a series of related transactions) of assets or earning power aggregating more than 50% of the assets or earning power of the Company on a consolidated basis; (iii) any complete liquidation or dissolution of the Company; (iv) any reorganization, reverse stock split or recapitalization of the Company which would result in a Change in Control as otherwise defined in this Plan; or (v) any transaction or series of related transactions having, directly or indirectly, the same effect as any of the foregoing.

2.4 “Code” means the Internal Revenue Code of 1986, as amended.

2.5 “Committee” means the Personnel and Benefits Committee of the Board or such other committee as the Board shall designate to administer the Plan. The Committee shall consist of at least two members of the Board and all of its members shall be “non-employee directors” as defined in Rule 16b-3 issued under the Act.

2.6 “Common Stock” means the Common Stock of the Company.

2.7 “Company” means ChoiceOne Financial Services, Inc., a Michigan corporation, and its successors and assigns.

2.8 “Consensual Severance” means the voluntary termination of all employment by the Participant with the Company or any of its Subsidiaries that the Committee determines to be in the best interests of the Company.

2.9 “Continuing Directors” means the individuals constituting the Board as of the date this Plan was adopted and any subsequent directors, if appointed or nominated by at least a majority of the Continuing Directors in office at the time of the nomination or appointment, but specifically excluding any individual whose initial assumption of office occurs as a result of either an actual or threatened solicitation in opposition to any Continuing Director subject to Rule 14a-12(c) of Regulation 14A issued under the Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board.

2.10 “Employee Benefit Plan” means any plan or program established by the Company or a Subsidiary for the compensation or benefit of employees of the Company or any of its Subsidiaries.

2.11 “Incentive Award” means the award or grant of a Stock Option, Stock Appreciation Right or Stock Award to a Participant pursuant to the Plan.

2.12 “Market Value” of any security on any given date means: (a) if the security is listed for trading on The Nasdaq Stock Market or one or more national securities exchanges, the last reported sales price on the date in question, or if the security shall not have been traded on the principal exchange on the applicable date, the last reported sales price on the first day before that date on which such security was so traded; (b) if the security is not so listed for trading but is traded in the over-the-counter market, the mean of highest bid and lowest asked prices for the

2

security on the date in question, or if there are no bid and asked prices for the security on that date, the mean of the highest bid and lowest asked prices on the first day before that date on which such prices existed; or (c) if neither (a) nor (b) is applicable, the value as determined by any means considered fair and reasonable by the Committee, which determination shall be final and binding on all parties.

2.13 “Participant” means a corporate officer or any key employee of the Company or its Subsidiaries who is granted an Incentive Award under the Plan.

2.14 “Person” has the same meaning as set forth in Sections 13(d) and 14(d)(2) of the Act.

2.15 “Plan Year” means the 12-month period beginning January 1 of each year, except that the Plan Year for purposes of the year in which the Plan becomes effective shall be that period between the effective date of the Plan and December 31 of such year.

2.16 “Retirement” means the voluntary termination of all employment by the Participant after the Participant has attained 55 years of age and completed six years of service with the Company or any of its Subsidiaries or as otherwise may be set forth in the Incentive Award agreement or other grant document with respect to a Participant and a particular Incentive Award.

2.17 “Stock Appreciation Right” means any right granted to a Participant pursuant to Section 6 of the Plan.

2.18 “Stock Award” means an award of Common Stock awarded to a Participant pursuant to Section 7 of the Plan.

2.19 “Stock Option” means the right to purchase Common Stock at a stated price for a specified period of time. For purposes of the Plan, a Stock Option may be either an incentive stock option within the meaning of Section 422(b) of the Code or a nonqualified stock option.

2.20 “Subsidiary” means any corporation or other entity of which 50% or more of the outstanding voting stock or voting ownership interest is directly or indirectly owned or controlled by the Company or by one or more Subsidiaries of the Company.

3

SECTION 3

Administration

3.1 Power and Authority. The Committee shall administer the Plan. The Committee may delegate record keeping, calculation, payment and other ministerial administrative functions to individuals designated by the Committee, who may be employees of the Company and its Subsidiaries. Except as limited in this Plan, the Committee shall have all of the express and implied powers and duties set forth in this Plan, shall have full power and authority to interpret the provisions of the Plan and Incentive Awards granted under the Plan and shall have full power and authority to supervise the administration of the Plan and Incentive Awards granted under the Plan and to make all other determinations considered necessary or advisable for the administration of the Plan. All determinations, interpretations and selections made by the Committee regarding the Plan shall be final and conclusive. The Committee shall hold its meetings at such times and places as it deems advisable. Action may be taken by a written instrument signed by a majority of the members of the Committee and any action so taken shall be fully as effective as if it had been taken at a meeting duly called and held. The Committee shall make such rules and regulations for the conduct of its business as it deems advisable.

3.2 Grants or Awards to Participants. In accordance with and subject to the provisions of the Plan, the Committee shall have the authority to determine all provisions of Incentive Awards as the Committee may deem necessary or desirable and as are consistent with the terms of the Plan, including, without limitation, the following: (a) the persons who shall be selected as Participants; (b) the nature and extent of the Incentive Awards to be made to each Participant (including the number of shares of Common Stock to be subject to each Incentive Award, any exercise price, the manner in which an Incentive Award will vest or become exercisable and the form of payment for the Incentive Award); (c) the time or times when Incentive Awards will be granted; (d) the duration of each Incentive Award; and (e) the restrictions and other conditions to which payment or vesting of Incentive Awards may be subject.

3.3 Amendments or Modifications of Awards. The Committee shall have the authority to amend or modify the terms of any outstanding Incentive Award in any manner, provided that the amended or modified terms are not prohibited by the Plan as then in effect, including, without limitation, the authority to: (a) modify the number of shares or other terms and conditions of an Incentive Award; (b) extend the term of an Incentive Award; (c) accelerate the exercisability or vesting or otherwise terminate any restrictions relating to an Incentive Award; (d) accept the surrender of any outstanding Incentive Award; and (e) to the extent not previously exercised or vested, authorize the grant of new Incentive Awards in substitution for surrendered Incentive Awards.

3.4 Indemnification of Committee Members. Neither any member or former member of the Committee nor any individual to whom authority is or has been delegated shall be personally responsible or liable for any act or omission in connection with the performance of powers or duties or the exercise of discretion or judgment in the administration and implementation of the Plan. Each person who is or shall have been a member of the Committee

4

shall be indemnified and held harmless by the Company from and against any cost, liability or expense imposed or incurred in connection with such person’s or the Committee’s taking or failing to take any action under the Plan. Each such person shall be justified in relying on information furnished in connection with the Plan’s administration by any appropriate person or persons.

SECTION 4

Shares Subject to the Plan

4.1 Number of Shares. Subject to adjustment as provided in Section 4.2 of the Plan, the total number of shares of Common Stock available for Incentive Awards under the Plan shall be (a) for the initial Plan Year, 5% of the total number of shares of Common Stock outstanding at the time the Plan becomes effective; plus (b) in each subsequent Plan Year, an additional number of shares of Common Stock not to exceed 2% of the number of shares of Common Stock outstanding as reported in the Company’s Annual Report on Form 10-K for the fiscal year ending immediately before such Plan Year such that at the beginning of each Plan Year after the initial Plan Year there shall be available, in addition to any amount of shares remaining from the 5% authorization for the initial Plan Year, a minimum number of shares equal to 2% of the number of shares of Common Stock outstanding; plus (c) there shall be carried forward and available for Incentive Awards under the Plan all of the following (subject to adjustment as provided in Section 4.2): (i) shares subject to Incentive Awards that are canceled, surrendered, modified, exchanged for substitute Incentive Awards or expire or terminate prior to the exercise or vesting of the Incentive Award in full; (ii) with respect to any succeeding Plan Year, any unused portion of the amount set forth in subsection (a) above; and (iii) shares that are surrendered to the Company in connection with the exercise or vesting of an Incentive Award, whether previously owned or otherwise subject to such Incentive Award. Such shares shall be authorized and may be either unissued or treasury shares.

4.2 Adjustments.

(a) Stock Dividends and Distributions. If the number of shares of Common Stock outstanding changes by reason of a stock dividend, stock split, recapitalization or other general distribution of Common Stock or other securities to holders of Common Stock, the number and kind of securities subject to Incentive Awards and reserved for issuance under the Plan, together with applicable exercise prices, as well as the number of shares available for issuance under the Plan, shall be adjusted appropriately. No fractional shares shall be issued pursuant to the Plan and any fractional shares resulting from such adjustments shall be eliminated from the respective Incentive Awards.

(b) Other Actions Affecting Common Stock. If there occurs, other than as described in the preceding subsection, any merger, business combination, recapitalization, reclassification, subdivision or combination approved by the Board that would result in the Persons who were shareholders of the Company immediately prior to the effective time of any such transaction owning or holding, in lieu of or in addition to

5

shares of Common Stock, other securities, money and/or property (or the right to receive other securities, money and/or property) immediately after the effective time of such transaction, then the outstanding Incentive Awards and reserves for Incentive Awards under this Plan shall be adjusted in such manner and at such time as shall be equitable under the circumstances. It is intended that in the event of any such transaction, Incentive Awards under this Plan shall entitle the holder of each Incentive Award to receive (upon exercise in the case of Stock Options), in lieu of or in addition to shares of Common Stock, any other securities, money and/or property receivable upon consummation of any such transaction by holders of Common Stock with respect to each share of Common Stock outstanding immediately prior to the effective time of such transaction; upon any such adjustment, holders of Incentive Awards under this Plan shall have only the right to receive in lieu of or in addition to shares of Common Stock such other securities, money and/or other property as provided by the adjustment. If the agreement, resolution or other document approved by the Board to effect any such transaction provides for the adjustment of Incentive Awards under the Plan in connection with such transaction, then the adjustment provisions contained in such agreement, resolution or other document shall be final and conclusive.

SECTION 5

Stock Options

5.1 Grant. A Participant may be granted one or more Stock Options under the Plan. The Committee, in its discretion, may provide in the initial grant of a Stock Option for the subsequent automatic grant of additional Stock Options for the number of shares that are subject to the initial Stock Option and surrendered to the Company in connection with the exercise of the initial or any subsequently granted Stock Option. Stock Options shall be subject to such terms and conditions, consistent with the other provisions of the Plan, as may be determined by the Committee in its sole discretion. The Committee may vary, among Participants and among Stock Options granted to the same Participant, any and all of the terms and conditions of the Stock Options granted under the Plan. The Committee shall have complete discretion in determining the number of Stock Options granted to each Participant. The Committee may designate whether or not a Stock Option is to be considered an incentive stock option as defined in Section 422(b) of the Code; provided, that the number of shares of Common Stock that may be designated as subject to incentive stock options for any given Participant shall be limited to that number of shares that become exercisable for the first time by the Participant during any Plan Year (under all plans of the Company and its Subsidiaries) and have an aggregate Market Value less than or equal to $100,000 (or such other amount as may be set forth in the Code) and all shares subject to an Incentive Award that have a Market Value in excess of such aggregate amount shall automatically be subject to Stock Options that are not incentive stock options.

6

5.2 Stock Option Agreements. Stock Options shall be evidenced by stock option agreements containing such terms and conditions, consistent with the provisions of the Plan, as the Committee shall from time to time determine. To the extent not covered by the stock option agreement, the terms and conditions of this Section 5 shall govern.

5.3 Stock Option Price. The per share Stock Option price shall be determined by the Committee, but shall be a price that is equal to or higher than the par value of the Company’s Common Stock; provided that the per share Stock Option price for any shares designated as incentive stock options shall be equal to or greater than 100% of the Market Value on the date of grant.

5.4 Medium and Time of Payment. The exercise price for each share purchased pursuant to a Stock Option granted under the Plan shall be payable in cash or, if the Committee consents, in shares of Common Stock (including Common Stock to be received upon a simultaneous exercise) or other consideration substantially equivalent to cash. The time and terms of payment may be amended with the consent of a Participant before or after exercise of a Stock Option. The Committee may from time to time authorize payment of all or a portion of the Stock Option price in the form of a promissory note or other deferred payment installments according to such terms as the Committee may approve. The Board may restrict or suspend the power of the Committee to permit such loans and may require that adequate security be provided.

5.5 Stock Options Granted to Ten Percent Shareholders. No Stock Option granted to any Participant who at the time of such grant owns, together with stock attributed to such Participant under Section 424(d) of the Code, more than 10% of the total combined voting power of all classes of stock of the Company or any of its Subsidiaries may be designated as an incentive stock option, unless such Stock Option provides an exercise price equal to at least 110% of the Market Value of the Common Stock and the exercise of the Stock Option after the expiration of five years from the date of grant of the Stock Option is prohibited by its terms.

5.6 Limits on Exercisability. Except as provided in Section 5.5, Stock Options shall be exercisable for such periods, not to exceed 10 years from the date of grant, as may be fixed by the Committee. At the time of the exercise of a Stock Option, the holder of the Stock Option, if requested by the Committee, must represent to the Company that the shares are being acquired for investment and not with a view to the distribution thereof. The Committee may in its discretion require a Participant to continue the Participant’s service with the Company and its Subsidiaries for a certain length of time prior to a Stock Option becoming exercisable and may eliminate such delayed vesting provisions.

7

5.7 Restrictions on Transferability.

(a) General. Unless the Committee otherwise consents (before or after the option grant) or unless the stock option agreement or grant provides otherwise; (i) no incentive stock options granted under the Plan may be sold, exchanged, transferred, pledged, assigned or otherwise alienated or hypothecated except by will or the laws of descent and distribution; and (ii) all Stock Options that are not incentive stock options may be transferred, provided, that as a condition to any such transfer the transferee must execute a written agreement permitting the Company to withhold from the shares subject to the Stock Option a number of shares having a Market Value at least equal to the amount of any federal, state or local withholding or other taxes associated with or resulting from the exercise of the Stock Option. All provisions of a Stock Option that are determined with reference to the Participant, including without limitation those that refer to the Participant’s employment with the Company or its Subsidiaries, shall continue to be determined with reference to the Participant after any transfer of a Stock Option.

(b) Other Restrictions. The Committee may impose other restrictions on any shares of Common Stock acquired pursuant to the exercise of a Stock Option under the Plan as the Committee deems advisable, including, without limitation, restrictions under applicable federal or state securities laws.

5.8 Termination of Employment.

(a) General. If a Participant is no longer employed by the Company or its Subsidiary for any reason other than the Participant’s Consensual Severance, Retirement, death, disability or termination for cause, the Participant may exercise his or her Stock Options in accordance with their terms for a period of three months after such termination of employment unless the terms of the applicable stock option agreement or grant provide otherwise, but only to the extent the Participant was entitled to exercise the Stock Options on the date of termination. For purposes of the Plan: (i) a transfer of an employee from the Company to any Subsidiary; (ii) a leave of absence, duly authorized in writing by the Company, for military service or for any other purpose approved by the Company if the period of such leave does not exceed 90 days; and (iii) a leave of absence in excess of 90 days, duly authorized in writing by the Company, provided the employee’s right to reemployment is guaranteed either by statute, contract or written policy of the Company shall not be deemed a termination of employment. For purposes of the Plan, termination of employment shall be considered to occur on the date on which the employee is no longer obligated to perform services for the Company or any of its Subsidiaries and the employee’s right to reemployment is not guaranteed either by statute, contract or written policy of the Company, regardless of whether the employee continues to receive compensation from the Company or any of its Subsidiaries after such date.

(b) Consensual Severance. If a Participant ceases to be employed by the Company or one of its Subsidiaries due to Consensual Severance, the Committee may, in its sole discretion, permit the Participant to exercise his or her Stock Options in accordance with their terms and to the extent that the Participant was entitled to exercise

8

the Stock Options on the date of termination for a period of time after such termination of employment as may be determined by the Committee, provided, that such period may not extend beyond the earlier of three years after the date of termination or the dates on which such Stock Options expire by their terms.

(c) Retirement. If a Participant ceases to be employed by the Company or one of its Subsidiaries due to Retirement, the Participant may exercise his or her Stock Options in accordance with their terms for a period of three years after such termination of employment unless such Stock Options earlier expire by their terms, but only to the extent that the Participant was entitled to exercise the Stock Options on the date of termination.

(d) Disability. If a Participant ceases to be employed by the Company or one of its Subsidiaries due to the Participant’s disability, he or she may exercise his or her Stock Options in accordance with their terms for one year after he or she ceases to be employed unless such Stock Options earlier expire by their terms, but only to the extent that the Participant was entitled to exercise the Stock Options on the date of such termination.

(e) Death. If a Participant dies either while an employee or otherwise during a time when the Participant could have exercised a Stock Option, the Stock Options issued to such Participant shall be exercisable in accordance with their terms by the personal representative of such Participant or other successor to the interest of the Participant for a period of one year after such Participant’s death to the extent that the Participant was entitled to exercise the Stock Options on the date of death but not beyond the original term of the Stock Options.

(f) Termination for Cause. If a Participant’s employment is terminated for cause, the Participant shall have no further right to exercise any Stock Options previously granted him or her.

SECTION 6

Stock Appreciation Rights

6.1 Grant. A Participant may be granted one or more Stock Appreciation Rights under the Plan and such Stock Appreciation Rights shall be subject to such terms and conditions, consistent with the other provisions of the Plan, as shall be determined by the Committee in its sole discretion. A Stock Appreciation Right may relate to a particular Stock Option and may be granted simultaneously with or subsequent to the Stock Option to which it relates. Stock Appreciation Rights shall be subject to the same restrictions and conditions as Stock Options under subsections 5.6, 5.7 and 5.8 of the Plan. To the extent granted in tandem with a Stock Option, the exercise of a Stock Appreciation Right shall, in exchange for the right to exercise a related Stock Option, entitle a Participant to an amount equal to the appreciation in value of the shares covered by the related Stock Option surrendered. Such appreciation in value shall be equal to the excess of the Market Value of such shares at the time of the exercise of the Stock Appreciation Right over the option price of such shares.

9

6.2 Exercise; Payment. To the extent granted in tandem with a Stock Option, Stock Appreciation Rights may be exercised only when a related Stock Option could be exercised and only when the Market Value of the stock subject to the Stock Option exceeds the exercise price of the Stock Option. The Committee shall have discretion to determine the form of payment made upon the exercise of a Stock Appreciation Right, which may take the form of shares of Common Stock.

SECTION 7

Stock Awards

7.1 Grant. A Participant may be granted one or more Stock Awards under the Plan. Stock Awards shall be subject to such terms and conditions, consistent with the other provisions of the Plan, as may be determined by the Committee in its sole discretion.

7.2 Rights as a Shareholder. A Participant shall have all voting, dividend, liquidation and other rights with respect to shares of Common Stock issued to the Participant as a Stock Award under this Section 7 upon the Participant becoming the holder of record of the Common Stock granted pursuant to such Stock Awards; provided, that the Committee may impose such restrictions on the assignment or transfer of Common Stock awarded pursuant to a Stock Award as it deems appropriate and may require the Participant to continue in the employ of the Company or a Subsidiary for a specified period of time after the award.

SECTION 8

Change in Control

Without in any way limiting the Committee’s discretion, the Committee may include in any Incentive Award provisions for acceleration of any vesting or other similar requirements or for the elimination of any restrictions upon Incentive Awards upon a Change in Control of the Company. The Committee also may include provisions for Participants to receive cash in lieu of outstanding Stock Options upon a Change in Control of the Company.

SECTION 9

General Provisions

9.1 No Rights to Awards. No Participant or other person shall have any claim to be granted any Incentive Award under the Plan and there is no obligation of uniformity of treatment of Participants or holders or beneficiaries of Incentive Awards under the Plan. The terms and

10

conditions of Incentive Awards of the same type and the determination of the Committee to grant a waiver or modification of any Incentive Award and the terms and conditions thereof need not be the same with respect to each Participant or among awards to the same Participant.

9.2 Withholding. The Company or a Subsidiary shall be entitled to (a) withhold and deduct from future wages of a Participant (or from other amounts that may be due and owing to a Participant from the Company or a Subsidiary), or make other arrangements for the collection of, all amounts necessary to satisfy any and all federal, state and local withholding and employment-related tax requirements attributable to an Incentive Award or any action related to an Incentive Award, including, without limitation, the grant, exercise or vesting of, or payment of dividends with respect to, an Incentive Award or a disqualifying disposition of Common Stock received upon exercise of an incentive stock option; or (b) require a Participant promptly to remit the amount of such withholding to the Company before taking any action with respect to an Incentive Award. Unless the Committee determines otherwise, withholding may be satisfied by withholding Common Stock to be received upon exercise or by delivery to the Company of previously owned Common Stock. The Company may establish such rules and procedures concerning timing of any withholding election as it deems appropriate.

9.3 Compliance With Laws; Listing and Registration of Shares. All Incentive Awards granted under the Plan (and all issuances of Common Stock or other securities under the Plan) shall be subject to all applicable laws, rules and regulations and to the requirement that if at any time the Committee shall determine, in its discretion, that the listing, registration or qualification of the shares covered thereby upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the grant of such Incentive Award or the issue or purchase of shares thereunder, such Incentive Award may not be exercised in whole or in part, or the restrictions on such Incentive Award shall not lapse, unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee.

9.4 No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent the Company or any Subsidiary from adopting or continuing in effect other or additional compensation arrangements, including the grant of stock options and other stock-based awards and such arrangements may be either generally applicable or applicable only in specific cases.

9.5 No Right to Employment. The grant of an Incentive Award shall not be construed as giving a Participant the right to be retained in the employ of the Company or any Subsidiary. The Company or any Subsidiary may at any time dismiss a Participant from employment, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or in any written agreement with a Participant.

9.6 Suspension of Rights under Incentive Awards. The Company, by written notice to a Participant, may suspend a Participant’s and any transferee’s rights under any Incentive Award for a period not to exceed 30 days while the termination for cause of that Participant’s employment with the Company and its Subsidiaries is under consideration.

11

9.7 Governing Law. The validity, construction and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of Michigan and applicable federal law.

9.8 Severability. If any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of the Plan and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

9.9 Change of Name. The Plan shall be automatically amended to reflect any change in the name of the Company.

SECTION 10

Termination and Amendment

The Board may terminate the Plan at any time, or may from time to time amend the Plan as it deems proper and in the best interests of the Company, provided that no such amendment may impair any outstanding Incentive Award without the consent of the Participant, except according to the terms of the Plan or the Incentive Award. No termination, amendment or modification of the Plan shall become effective with respect to any Incentive Award previously granted under the Plan without the prior written consent of the Participant holding such Incentive Award unless such amendment or modification operates solely to the benefit of the Participant.

SECTION 11

Effective Date and Duration of the Plan

This Plan shall take effect April 27, 2000, subject to approval by the shareholders. No Incentive Award shall be granted under the Plan after April 26, 2010.

12

EX-13

Exhibit 13

CHOICEONE FINANCIAL SERVICES, INC.

2011

ANNUAL REPORT TO SHAREHOLDERS

CHOICEONE FINANCIAL SERVICES, INC.

2011 Annual Report to Shareholders

Contents
To Our Shareholders	1
About ChoiceOne Financial Services, Inc.	1
Stock Information	1
Selected Financial Data	3
Management’s Discussion and Analysis of Financial Condition and Results of Operations	4
Management’s Report on Internal Control Over Financial Reporting	18
Report of Independent Registered Public Accounting Firm	19
Consolidated Financial Statements	20
Notes to Consolidated Financial Statements	24
Corporate and Shareholder Information	50
Directors and Officers	51

CHOICEONE FINANCIAL SERVICES, INC.

TO OUR SHAREHOLDERS

This 2011 Annual Report to Shareholders contains our audited financial statements, detailed financial review and all of the information that regulations of the Securities and Exchange Commission (the “SEC”) require to be presented in annual reports to shareholders. For legal purposes, this is the ChoiceOne Financial Services, Inc. 2011 Annual Report to Shareholders. Although attached to our proxy statement, this report is not part of our proxy statement, is not considered to be soliciting material and is not considered to be filed with the SEC except to the extent that it is expressly incorporated by reference in a document filed with the SEC. Shareholders who would like to receive even more detailed information than that contained in this 2011 Annual Report to Shareholders are invited to request our Annual Report on Form 10-K.

Our Annual Report on Form 10-K for the year ended December 31, 2011, including the financial statements and financial statement schedules, will be provided to any shareholder, without charge, upon written request to Mr. Thomas Lampen, Treasurer, ChoiceOne Financial Services, Inc., 109 East Division Street, Sparta, Michigan 49345.

ABOUT CHOICEONE FINANCIAL SERVICES, INC.

ChoiceOne Financial Services, Inc. is a single-bank holding company. Its principal banking subsidiary, ChoiceOne Bank (Sparta, Michigan), primarily serves communities in portions of Kent, Muskegon, Newaygo, and Ottawa counties in Michigan where ChoiceOne’s offices are located and the areas immediately surrounding those communities. Currently ChoiceOne serves those markets through thirteen full-service offices. ChoiceOne Insurance Agencies, Inc. is a wholly-owned subsidiary of ChoiceOne Bank and sells insurance and investment products.

ChoiceOne’s business is primarily concentrated in a single industry segment – banking. ChoiceOne Bank is a full-service banking institution that offers a variety of deposit, payment, credit and other financial services to all types of customers. These services include time, savings, and demand deposits, safe deposit services, and automated transaction machine services. Loans, both commercial and consumer, are extended primarily on a secured basis to corporations, partnerships and individuals. Commercial lending covers such categories as business, industry, agricultural, construction, inventory and real estate. ChoiceOne Bank’s consumer loan department makes direct loans to consumers and purchasers of residential property.

The principal source of revenue for ChoiceOne is interest and fees on loans. On a consolidated basis, interest and fees on loans accounted for 67%, 69%, and 70% of total revenues in 2011, 2010, and 2009, respectively. Interest from securities accounted for 11%, 10%, and 11% of total revenues in 2011, 2010, and 2009, respectively.

STOCK INFORMATION

Several brokers trade ChoiceOne’s common shares in the over-the-counter bulletin board market. There is no well-established public trading market for the shares and trading activity is infrequent. ChoiceOne’s trading volume and recent share price information can be viewed under the symbol ‘COFS.OB’ on certain financial websites.

The range of high and low bid prices for shares of common stock for each quarterly period during the past two years is as follows:

	2011				2010
	Low		High		Low		High
First Quarter	$	11.00	$	20.00	$	7.75	$	9.00
Second Quarter		10.50		13.00		8.30		10.10
Third Quarter		10.60		12.75		9.50		11.00
Fourth Quarter		10.26		12.50		10.25		12.25

The prices listed above are over-the-counter market quotations reported to ChoiceOne by its market makers listed in this annual report. The over-the-counter market quotations reflect inter-dealer prices without retail markup, markdown or commission and may not necessarily represent actual transactions. As of February 29, the average bid price for shares of ChoiceOne common stock was $12.50.

As of February 29, 2012, there were 3,293,626 shares of ChoiceOne Financial Services, Inc. common stock issued and outstanding. As of February 29, 2012, there were 806 shareholders of record of ChoiceOne Financial Services, Inc. common stock.

1

The following table summarizes cash dividends declared per share of common stock during 2011 and 2010:

	2011		2010
First Quarter	$	0.12	$	0.12
Second Quarter		0.12		0.12
Third Quarter		0.12		0.12
Fourth Quarter		0.12		0.12
Total	$	0.48	$	0.48

ChoiceOne’s principal source of funds to pay cash dividends is the earnings and dividends paid by ChoiceOne Bank. ChoiceOne Bank is restricted in its ability to pay cash dividends under current banking regulations. See Note 21 to the consolidated financial statements for a description of these restrictions. Based on information presently available, management expects ChoiceOne to declare and pay regular quarterly cash dividends in 2012, although the amount of the quarterly dividends will be dependent on market conditions and ChoiceOne’s requirements for cash and capital, among other things.

2

ChoiceOne Financial Services, Inc.

SELECTED FINANCIAL DATA

(Dollars in thousands, except per share data)

	2011			2010			2009			2008			2007
For the year
Net interest income	$	17,922		$	16,995		$	15,996		$	15,331		$	15,143
Provision for loan losses		3,700			3,950			4,875			3,475			2,035
Noninterest income		6,139			5,569			5,421			4,083			6,481
Noninterest expense		15,788			15,249			15,259			14,711			15,070
Income before income taxes		4,573			3,365			1,283			1,228			4,519
Income tax expense/(benefit)		1,060			654			(195	)		(207	)		939
Net income		3,513			2,711			1,478			1,435			3,580
Cash dividends declared		1,578			1,572			1,563			2,202			2,200
Per share
Basic earnings	$	1.07		$	0.83		$	0.45		$	0.44		$	1.11
Diluted earnings		1.07			0.83			0.45			0.44			1.10
Cash dividends declared		0.48			0.48			0.48			0.68			0.68
Shareholders’ equity (at year end)		17.58			16.56			16.21			16.08			16.45
Average for the year
Securities	$	104,986		$	86,437		$	76,934		$	85,086		$	84,059
Gross loans		317,271			315,031			320,328			326,420			328,335
Deposits		396,474			374,274			347,007			347,190			358,244
Federal Home Loan Bank advances		8,461			16,477			28,857			38,803			27,061
Shareholders’ equity		56,098			54,012			53,115			53,411			52,205
Assets		486,478			469,484			453,876			465,741			465,143
At year end
Securities	$	118,025		$	94,979		$	78,987		$	81,941		$	87,725
Gross loans		320,127			316,940			322,716			325,977			328,358
Deposits		403,365			389,884			365,010			346,998			351,844
Federal Home Loan Bank advances		8,447			8,473			21,980			39,957			35,933
Shareholders’ equity		57,904			54,313			52,926			52,185			53,142
Assets		495,914			480,524			465,915			463,551			470,155
Selected financial ratios
Return on average assets		0.72	%		0.58	%		0.33	%		0.31	%		0.77	%
Return on average shareholders’ equity		6.26			5.02			2.78			2.69			6.86
Cash dividend payout as a percentage of net income		44.92			57.99			105.75			153.45			61.45
Shareholders’ equity to assets (at year end)		11.68			11.30			11.36			11.26			11.30

3

ChoiceOne Financial Services, Inc.

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. (“ChoiceOne” or the “Company”), and its wholly-owned subsidiaries, ChoiceOne Bank (the “Bank”) and ChoiceOne Insurance Agencies, Inc. (the “Insurance 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 annual 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 ChoiceOne itself. Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “is likely,” “plans,” “predicts,” “projects,” “may,” “could,” variations of such words and similar expressions are intended to identify such forward-looking statements. Management’s determination of the provision and allowance for loan losses, the carrying value of goodwill and loan servicing rights, and the fair value of investment securities (including whether any impairment on any investment security is temporary or other than temporary) and management’s assumptions concerning pension and other postretirement benefit plans involve judgments that are inherently forward-looking. All of the information concerning interest rate sensitivity is forward-looking. 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, ChoiceOne 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, the risk factors discussed in Item 1A of the Company’s Annual Report on Form 10-K; 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 abilities to repay loans; changes in the local and national economies; changes in market conditions; the level and timing of asset growth; various other local and global uncertainties such as acts of terrorism and military actions; and current uncertainties and fluctuations in the financial markets and stocks of financial services providers due to concerns about capital and credit availability and concerns about the Michigan economy in particular. These are representative of the risk factors that could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The purpose of this section of the 2011 Annual Report to Shareholders is to provide a narrative discussion about the Company’s financial condition and results of operations during 2011. Management’s discussion and analysis of financial condition and results of operations as well as disclosures found elsewhere in the 2011 Annual Report to Shareholders are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses and loan servicing rights. Actual results could differ from those estimates.

Securities

Securities available for sale may be sold prior to maturity due to changes in interest rate, prepayment risks, yield, availability of alternative investments, liquidity needs, credit rating changes, or other factors. Securities classified as available for sale are reported at their fair value. Declines in the fair value of securities below their cost that are considered to be “other than temporary” are recorded as losses in the income statement. In estimating whether a fair value decline is considered to be “other than temporary,” management considers the length of time and extent that the security’s fair value has been less than its carrying value, the financial condition and near-term prospects of the issuer, and the Bank’s ability and intent to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value.

Market values for securities available for sale are obtained from outside sources and applied to individual securities within the portfolio. The difference between the amortized cost and the fair value of securities is recorded as a valuation adjustment and reported net of tax effect in other comprehensive income.

4

Allowance for Loan Losses

The allowance for loan losses is maintained at a level believed adequate by management to absorb probable incurred losses inherent in the consolidated loan portfolio. Management’s evaluation of the adequacy of the allowance is an estimate based on reviews of individual loans, assessments of the impact of current economic conditions on the portfolio and historical loss experience of seasoned loan portfolios.

Management believes the accounting estimate related to the allowance for loan losses is a “critical accounting estimate” because (1) the estimate is highly susceptible to change from period to period because of assumptions concerning the changes in the types and volumes of the portfolios and current economic conditions and (2) the impact of recognizing an impairment or loan loss could have a material effect on the Company’s assets reported on the balance sheet as well as its net income.

Loan Servicing Rights

Loan servicing rights represent the estimated value of servicing loans that are sold with servicing retained by ChoiceOne. Servicing rights are expensed in proportion to, and over the period of, estimated net servicing revenues. Management’s accounting treatment of loan servicing rights is estimated based on current prepayment speeds that are typically market driven.

Management believes the accounting estimate related to loan servicing rights is a “critical accounting estimate” because (1) the estimate is highly susceptible to change from period to period because of significant changes within long-term interest rates affecting the prepayment speeds for current loans being serviced and (2) the impact of recognizing an impairment loss could have a material effect on ChoiceOne’s net income. Management has obtained a third-party valuation of its loan servicing rights to corroborate its current carrying value at the end of each reporting period.

Goodwill

Generally accepted accounting principles require that the fair values of the assets and liabilities of an acquired entity be recorded at their fair value on the date of acquisition. The fair values are determined using both internal computations and information obtained from outside parties when deemed necessary. The net difference between the price paid for the acquired company and the net value of its balance sheet is recorded as goodwill. Accounting principles also require that goodwill be evaluated for impairment on an annual basis or more frequently whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

Management performed its annual review of goodwill as of June 30, 2011. ChoiceOne engaged an outside consulting firm to assist in the goodwill impairment analysis. The following steps were used in the valuation: determination of the reporting unit, determination of the appropriate standard of value, determination of the appropriate level of value, calculation of fair value, and comparison of the fair value computed to the equity carrying value. It was determined that the relevant reporting unit to be valued was ChoiceOne Bank. The standard of value used in the valuation was fair value as determined by generally accepted accounting principles. The appropriate level of value was determined to be the controlling interest level. The appraisal methodology used to calculate the fair value included the following valuation approaches:

Income Approach: A discounted cash flow value was calculated based on earnings capacity. The discount rate used for the calculation was 12.90%. The growth assumption for assets was 0.2% for the first year and 1.0% in subsequent years. In addition, it was assumed that cost savings of 20% of noninterest expense would occur as a result of synergies and cost reductions from a change in control.

Market Approach: The analysis was based on price-to-earnings multiples, price-to-tangible book value ratios, and core deposit premiums for selected bank sale transactions.

The Asset Approach was also an approach reviewed, but it was not used in determining the fair value since it did not render a control level indication of value. The results from the valuation approaches were used to calculate an estimate of the fair value of ChoiceOne’s equity. The fair value was compared to the carrying value of equity to determine whether the Step 1 test under generally accepted accounting principles that govern the valuation of goodwill was passed. The goodwill analysis determined that the fair value of ChoiceOne’s equity exceeded the carrying value by 7.8%. Based on this assessment, management believed that there was no indication of goodwill impairment.

Taxes

Income taxes include both a current and deferred portion. Deferred tax assets and liabilities are recorded to account for differences in the timing of the recognition of revenues and expenses for financial reporting and tax purposes. Generally accepted accounting principles require that deferred tax assets be reviewed to determine whether a valuation allowance should be established using a

5

“more likely than not” standard. Based on its review of ChoiceOne’s deferred tax assets as of December 31, 2011, management determined that a valuation allowance of $89,000 was necessary.

RESULTS OF OPERATIONS

Summary

(Dollars in thousands)	Year ended December 31
	2011			2010			2009
Net interest income	$	17,922		$	16,995		$	15,996
Provision for loan losses		(3,700	)		(3,950	)		(4,875	)
Noninterest income		6,139			5,569			5,421
Noninterest expense		(15,788	)		(15,249	)		(15,259	)
Income tax (expense)/benefit		(1,060	)		(654	)		195
Net income	$	3,513		$	2,711		$	1,478

	2011			2010			2009
Return on average assets		0.72	%		0.58	%		0.33	%
Return on average equity		6.26	%		5.02	%		2.78	%

Net income for 2011 was $3,513,000, which represented an $802,000 or 30% increase from 2010. The growth in net income resulted from increases in net interest income and noninterest income and a decrease in the provision for loan losses, which was partially offset by an increase in noninterest expense in 2011 compared to 2010. The increase in net interest income was due to growth in average earning assets and an increase in ChoiceOne’s net interest spread in 2011 compared to the prior year. The expansion in noninterest income was due to growth in customer service charges and other noninterest income and an improvement in gains (losses) on sales of other assets in 2011 compared to 2010. The decrease in the provision for loan losses resulted from lower net charge-offs in 2011 than in 2010 and a $1.8 million reduction in nonperforming loans from December 31, 2010 to December 31, 2011. The increase in noninterest expense was due to higher salaries and benefits, professional fees, and other noninterest expense as well as smaller increases in other expense categories in 2011 compared to the prior year.

Net income for 2010 was $2,711,000, which represented a $1,233,000 or 84% increase from 2009. The growth in net income resulted from increases in net interest income and noninterest income while decreases occurred in the provision for loan losses and noninterest expense in 2010 compared to 2009. The increase in net interest income was due to growth in average earning assets and an increase in ChoiceOne’s net interest spread in 2010 compared to the prior year. The expansion in noninterest income was due to higher levels of gains on sales of loans and gains on sales of securities in 2010 than in 2009. The decrease in the provision for loan losses resulted from lower net charge-offs in 2010 than in 2009 and a $5.6 million reduction in nonperforming loans from December 31, 2009 to December 31, 2010. The small decline in noninterest expense was due to lower occupancy and equipment expense, loan and collection expense, and FDIC insurance expense, offset by increases in salaries and benefits and various other expenses in 2010 compared to the prior year.

Dividends

Cash dividends of $1,578,000 or $0.48 per common share were declared in 2011, compared to $1,572,000 or $0.48 per common share in 2010 and $1,563,000 or $0.48 per common share in 2009. Dividends declared were $0.12 per share in each quarter in 2011, 2010, and 2009. The dividend yield on ChoiceOne’s common stock was 4.05% in 2011, compared to 4.79% in 2010 and 6.66% in 2009. The cash dividend payout as a percentage of net income was 45% in 2011, compared to 58% in 2010 and 106% in 2009.

ChoiceOne’s principal source of funds to pay cash dividends is the earnings of the Bank. The availability of these earnings is dependent upon the capital needs, regulatory constraints and other factors involving the Bank. Regulatory constraints include the maintenance of minimum capital ratios and limits based on net income and retained earnings of the Bank for the past three years. ChoiceOne expects to pay quarterly cash dividends in 2012 to shareholders based on the actual earnings of the Bank, although the amount of the quarterly dividends will be dependent on market conditions and ChoiceOne’s requirements for cash and capital, among other things.

6

Table 1 – Average Balances and Tax-Equivalent Interest Rates

(Dollars in thousands)

	Year ended December 31
	2011								2010								2009
	Average Balance		Interest			Average Rate			Average Balance		Interest			Average Rate			Average Balance		Interest			Average Rate
Assets
Loans (1) (2)	$	317,271	$	18,417			5.80	%	$	315,031	$	19,103			6.06	%	$	320,328	$	19,944			6.23	%
Taxable securities (3)		71,871		1,789			2.49			50,997		1,460			2.86			34,115		1,390			4.07
Tax-exempt securities (1)		33,115		1,913			5.78			35,440		2,110			5.95			42,819		2,669			6.23
Other		1,141		20			1.75			6,498		22			0.34			2,695		7			0.26
Interest-earning assets		423,398		22,139			5.23			407,966		22,695			5.56			399,957		24,010			6.00
Noninterest-earning assets (4)		63,080								61,518								53,919
Total assets	$	486,478							$	469,484							$	453,876
Liabilities and Shareholders’ Equity
Interest-bearing demand deposits	$	124,575		541			0.43	%	$	108,522		553			0.51	%	$	85,154		520			0.61	%
Savings deposits		45,698		51			0.11			40,534		80			0.20			36,371		113			0.31
Certificates of deposit		153,494		2,364			1.54			160,390		3,281			2.05			167,065		4,920			2.94
Advances from FHLB		8,461		307			3.63			16,477		748			4.54			28,857		1,186			4.11
Other		21,179		290			1.37			19,273		304			1.58			19,435		351			1.81
Interest-bearing liabilities		353,407		3,553			1.01			345,196		4,966			1.44			336,882		7,090			2.10
Demand deposits		72,707								64,828								58,417
Other noninterest-bearing liabilities		4,266								5,448								5,462
Total liabilities		430,380								415,472								400,761
Shareholders’ equity		56,098								54,012								53,115
Total liabilities and shareholders’ equity	$	486,478							$	469,484							$	453,876
Net interest income (tax-equivalent basis) – interest spread				18,586			4.22	%				17,729			4.12	%				16,920			3.90	%
Tax-equivalent adjustment (1)				(664	)							(734	)							(924	)
Net interest income			$	17,922							$	16,995							$	15,996
Net interest income as a percentage of earning assets (tax-equivalent basis)							4.39	%							4.35	%							4.23	%

(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 years presented.

(2) Interest on loans included net origination fees charged on loans of approximately $831,000, $751,000, and $783,000 in 2011, 2010, and 2009, respectively.

(3) Interest on taxable securities includes dividends on Federal Home Loan Bank and Federal Reserve Bank stock.

(4) Noninterest-earning assets include loans on a nonaccrual status, which averaged approximately $6,256,000, $10,286,000, and $8,961,000 in 2011, 2010, and 2009, respectively.

Net Interest Income

As shown in Tables 1 and 2, tax-equivalent net interest income increased $857,000 in 2011 compared to 2010. The growth was due to growth of $15.4 million in average interest-earning assets in 2011 compared to 2010 and a 10 basis point increase in ChoiceOne’s net interest income spread compared to 2010. The higher level of average interest-earning assets contributed an additional $842,000 in net interest income in 2011 compared to 2010, while the growth in the net interest income spread caused an increase of $15,000 in net interest income in 2011 compared to the prior year.

7

The average balance of loans increased $2.2 million in 2011 compared to 2010. A 26 basis point decrease in the average rate earned on loans had a larger impact on interest income on loans as it declined $686,000 in 2011 compared to the prior year. The average balance of total securities increased by $18.5 million in 2011 compared to 2010. This growth in the average balance, partially offset by a lower average rate earned on securities, caused interest income from securities to increase $132,000 in 2011 compared to the prior year. A decrease in the average balance of other interest-earning assets, offset by an increase in the average rate earned resulted in a decrease in interest income of $2,000 in 2011 compared to 2010. Although the average balance of loans grew slightly in 2011 compared to 2010, loan demand continued to be sluggish due to continued concerns about the Michigan economy. Growth in securities was due to ChoiceOne’s desire to achieve growth in earning assets.

The average balance of interest-bearing demand deposits increased $16.1 million in 2011 compared to 2010. The effect of this increase, offset by an 8 basis point decline in the average rate paid, caused interest expense to be $12,000 lower in 2011 than in the prior year. The effect of a 9 basis point decrease in the average rate paid on savings deposits in 2011 compared to 2010 was partially offset by the effect of growth of $5.2 million in the average balance as interest expense dropped $29,000. The average balance of certificates of deposit was $6.9 million lower in 2011 than in the prior year. Approximately $5.3 million of the certificates of deposit decline was related to certificates from ChoiceOne’s local markets, while the remaining $1.6 million was a lower level of brokered certificates. The average balance decrease plus the effect of a 51 basis point decline in the average rate paid caused interest expense on certificates of deposit to fall $917,000 in 2011 compared to 2010. An $8.0 million decrease in the average balance of Federal Home Loan Bank advances and a 91 basis point decrease in the average rate paid caused interest expense to decline $441,000 in 2011 compared to the prior year. Interest expense on other interest-bearing liabilities fell $14,000 in 2011 compared to 2010 due to a reduction of 21 basis points in the average interest rate paid, which was partially offset by a $1.9 million increase in the average balance. The growth experienced in interest-bearing demand deposits and savings deposits was primarily due to depositors choosing the liquidity and safety afforded by this type of deposit as compared to certificates of deposit or nonbank investments.

ChoiceOne’s net interest income spread was 4.22% (shown in Table 1) for 2011, compared to 4.12% in 2010. The average yield received on interest-earning assets in 2011 decreased 33 basis points to 5.23% while the average rate paid on interest-bearing liabilities in 2011 fell 43 basis points to 1.01%. The decline in general market interest rates in both 2010 and 2011 caused the reduction in rates for both assets and liabilities in the two time periods.

Table 2 – Changes in Tax-Equivalent Net Interest Income

(Dollars in thousands)

	Year ended December 31
	2011 Over 2010									2010 Over 2009
	Total			Volume			Rate			Total			Volume			Rate
Increase (decrease) in interest income (1)
Loans (2)	$	(686	)	$	135		$	(821	)	$	(841	)	$	(326	)	$	(515	)
Taxable securities		329			538			(209	)		70			560			(490	)
Tax-exempt securities (2)		(197	)		(136	)		(61	)		(559	)		(444	)		(115	)
Other		(2	)		(30	)		28			15			12			3
Net change in tax-equivalent income		(556	)		507			(1,063	)		(1,315	)		(198	)		(1,117	)
Increase (decrease) in interest expense (1)
Interest-bearing demand deposits		(12	)		76			(88	)		33			128			(95	)
Savings deposits		(29	)		9			(38	)		(33	)		12			(45	)
Certificates of deposit		(917	)		(136	)		(781	)		(1,639	)		(189	)		(1,450	)
Advances from Federal Home Loan Bank		(441	)		(312	)		(129	)		(438	)		(552	)		114
Other		(14	)		28			(42	)		(47	)		(3	)		(44	)
Net change in interest expense		(1,413	)		(335	)		(1,078	)		(2,124	)		(604	)		(1,520	)
Net change in tax-equivalent net interest income	$	857		$	842		$	15		$	809		$	406		$	403

(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 tax-exempt securities and loans has been adjusted to a fully tax-equivalent basis using an incremental tax rate of 34% for the years presented.

8

Tax-equivalent net interest income increased $809,000 in 2010 compared to 2009. The increase was caused by $8.0 million growth in average earning assets and a 22 basis point increase in the net interest spread in 2010 compared to the prior year. The growth in average earning assets resulted from an increase of $9.5 million in securities, which was partially offset by a $5.3 million decline in loans. The growth in ChoiceOne’s net interest spread was caused by a 66 basis point decrease in the average rate paid on interest-bearing liabilities compared to a 44 basis point decline in the average rate earned on interest-earning assets.

Management anticipates that the level of net interest income in 2012 will depend upon the Bank’s ability to grow or maintain interest-earning assets in the form of loans and securities as well as its ability to do the same with its base of core deposits. Growth in earning assets will continue to be dependent on the Michigan economy. If growth in loans is difficult to obtain, the Bank can opt to invest in securities as it did in 2011. The Bank’s ability to maintain or grow its net interest spread will be contingent on movement in general market interest rates and their effect on new and maturing assets and liabilities.

Allowance and Provision For Loan Losses

Information regarding the allowance and provision for loan losses can be found in Table 3 below:

Table 3 – Provision and Allowance For Loan Losses

(Dollars in thousands)

	2011			2010			2009			2008			2007
Allowance for loan losses at beginning of year	$	4,729		$	4,322		$	3,600		$	3,600		$	3,569
Charge-offs:
Agricultural		45			—			—			—			33
Commercial and industrial		228			765			1,558			1,193			599
Real estate - commercial		1,357			1,523			1,218			816			841
Real estate - construction		—			—			14			—			—
Real estate - residential		1,677			1,152			1,369			1,252			191
Consumer		361			444			535			567			635
Total		3,668			3,884			4,694			3,828			2,299
Recoveries:
Agricultural		10			—			—			—			3
Commercial and industrial		32			68			102			60			27
Real estate - commercial		89			16			58			35			1
Real estate - construction		—			—			29			—			—
Real estate - residential		104			27			106			6			10
Consumer		217			230			246			252			254
Total		452			341			541			353			295
Net charge-offs		3,216			3,543			4,153			3,475			2,004
Provision for loan losses		3,700			3,950			4,875			3,475			2,035
Allowance for loan losses at end of year	$	5,213		$	4,729		$	4,322		$	3,600		$	3,600
Allowance for loan losses as a percentage of:
Total loans as of year end		1.63	%		1.49	%		1.34	%		1.10	%		1.10	%
Nonaccrual loans, accrual loans past due 90 days or more and troubled debt restructurings		78	%		56	%		31	%		39	%		62	%
Ratio of net charge-offs to average total loans outstanding during the year		1.01	%		1.12	%		1.30	%		1.06	%		0.61	%
Loan recoveries as a percentage of prior year’s charge-offs		12	%		9	%		16	%		15	%		15	%

9

As shown in Table 3, the provision for loan losses was $250,000 lower in 2011 than in 2010. The reduction in the provision level resulted in part from a decrease of $327,000 in net charge-offs experienced in 2011 compared to 2010. Net charge-offs of commercial and industrial loans declined $501,000 and net charge-offs of commercial real estate loans decreased $239,000 in 2011 compared to 2010. Net charge-offs of residential real estate loans increased from $1.1 million in 2010 to $1.6 million in 2011. Both the continuing sluggish economy affecting the ability of borrowers to pay and declining property values were factors in the increase in 2011. Consumer loan net charge-offs were down slightly in 2011 compared to the prior year. The allowance for loan losses as a percentage of total loans increased from 1.49% as of the end of 2010 to 1.63% as of the end of 2011. The coverage ratio of the allowance for loan losses to nonperforming loans increased from 56% as of December 31, 2010 to 78% as of December 31, 2011. This was due to growth of $484,000 in the allowance balance and a reduction of nonperforming loans from $8.4 million as of the end of 2010 to $6.7 million as of the end of 2011. ChoiceOne had $431,000 of specific allowance allocations for problem loans as of the end of 2011, compared to $582,000 as of the prior year end. Special allowance amounts have been allocated where the fair values of loans were considered to be less than their carrying values. ChoiceOne obtains valuations on collateral dependent loans when the loan is considered by management to be impaired and uses the valuation amounts in the determination of fair value. Management believes the specific reserves allocated to certain problem loans at the end of 2011 and 2010 were reasonable based on the circumstances surrounding each particular borrower.

The following schedule presents an allocation of the allowance for loan losses to the various loan categories as of the years ended December 31:

(Dollars in thousands)

	2011		2010		2009		2008		2007
Agricultural	$	55	$	181	$	124	$	242	$	397
Commercial and industrial		609		641		735		616		873
Real estate - commercial		2,299		1,729		1,546		996		886
Real estate - construction		34		2		3		5		10
Real estate - residential		1,847		1,554		1,590		1,124		881
Consumer		197		243		306		351		489
Unallocated		172		379		18		266		64
Total allowance for loan losses	$	5,213	$	4,729	$	4,322	$	3,600	$	3,600

The decrease in the allowance allocation to agricultural loans was due to the limited charge-off activity in this loan category. Although net charge-offs of commercial real estate loans were lower in 2011 than in the prior year, management believed that the continuing risk of loans secured by real estate warranted an increase in the allowance allocation. The allowance allocation to residential real estate loans was increased for the same reason and in recognition of the higher net charge-off level experienced in 2011.

Management maintains the allowance at a level that it believes adequately provides for losses inherent in the loan portfolio. Such losses are estimated by a variety of factors, including specific examination of certain borrowing relationships and consideration of historical losses incurred on certain types of credits. Current economic conditions and declining collateral values affect loss estimates. Management focuses on early identification of problem credits through ongoing reviews by management and the independent loan review function. Based on the current state of the economy and a recent review of the loan portfolio, management believes that the allowance for loan losses as of December 31, 2011 is adequate. As charge-offs, changes in the level of nonperforming loans, and changes within the composition of the loan portfolio occur, 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 $570,000 in 2011 compared to 2010. Customer service charges increased $294,000 in 2011 compared to the prior year as growth in debit card interchange fees and checking account fees were partially offset by a continued decline in overdraft fees. Gains on sales of securities declined $408,000 in 2011 compared to the prior year. Gains on sales of securities in 2010 included $386,000 from sales of preferred stock that represented a recovery of losses recognized on money market preferred securities in 2008. Gains (losses) on sales of other assets improved by $461,000 as write-downs of values of other real estate properties and losses on sales of properties were less in 2011 than in 2010. Most of the $163,000 increase in other noninterest income resulted from amortization of mark-to-market adjustment of mortgage servicing fees that ended in October 2010.

Total noninterest income increased $148,000 in 2010 compared to 2009. Customer service charges were virtually unchanged as decreases in overdraft charges were offset by increases in fees from debit card usage. Gains on sales of loans grew $81,000 in 2010

10

compared to the prior year as mortgage refinancing activity continued to be stimulated by low interest rates for long-term fixed rate mortgages. ChoiceOne’s net gains on sales of securities grew $135,000 in 2010 compared to 2009. Gains on sales of preferred stock were $386,000 in 2010 compared to $245,000 in the prior year. These gains represented a recovery of losses recognized on money market preferred securities in 2008. The loss on other than temporary impairment of securities in 2010 and 2009 was related to a municipal security that defaulted upon its maturity in September 2009.

Noninterest Expense

Total noninterest expense increased $539,000 in 2011 compared to 2010. Salaries and benefits increased $308,000 in 2011 compared to the prior year as a result of staffing additions and increased incentives. Occupancy and equipment expense was $90,000 higher in 2011 than in 2010 as depreciation expense, utilities, and various other expenses increased from the prior year. The $89,000 increase in data processing expense in 2011 compared to the prior year resulted from higher costs related to electronic banking usage. Professional fees were $118,000 higher in 2011 than in 2010 due to increases in legal, accounting, and consulting costs. Loan and collection expense declined $103,000 in 2011 compared to 2010 due to lower collection costs for problem loans, including amounts paid for outside collection services. FDIC insurance expense was $153,000 lower in 2011 than in the prior year due to a change in the assessment base for insurance beginning in the second quarter of 2011. Other noninterest expense grew by $178,000 in 2011 compared to 2010 as a result of increases in training and recruiting expenses, directors’ fees, loan-related expense, and a number of other expense accounts.

Total noninterest expense decreased $10,000 in 2010 compared to 2009. Salaries and benefits increased $138,000 in 2010 compared to the prior year, partly due to an increase of $113,000 in 401(k) plan expense as ChoiceOne reinstated its company contribution in 2010. Occupancy and equipment expense was $70,000 lower in 2010 than in 2009 as depreciation expense and various other expenses declined from the prior year. The $52,000 increase in data processing expense in 2010 compared to the prior year resulted from higher costs related to electronic banking usage. Professional fees were $46,000 higher in 2010 than in 2009 due to increases in legal, accounting, and consulting costs. Advertising and promotional expense grew $44,000 in 2010 compared to the prior year as a result of more promotion of ChoiceOne’s new and existing products. Loan and collection expense declined $99,000 in 2010 compared to 2009 due to lower collection costs for problem loans. FDIC insurance expense was $144,000 lower in 2010 than in the prior year due to a special assessment of $204,000 that was levied in the second quarter of 2009, the effect of which was partially offset by higher deposit balances in 2010 than in 2009. Other noninterest expense grew by $51,000 in 2010 compared to 2009 as a result of changes in a number of expense accounts.

Income Taxes

Income taxes were $1,060,000 in 2011, compared to tax expense of $654,000 in 2010 and a tax benefit of $195,000 in 2009. The change in the income tax effect from 2010 to 2011 was caused by a $1.2 million increase in income before income tax in 2011 compared to the prior year. The tax benefit realized in 2009 was due to the level of ChoiceOne’s tax-exempt interest income, which was larger than income before income tax.

11

Financial Condition

Summary

Total assets were $495.9 million as of December 31, 2011, which represented an increase of $15.4 million or 3% from the end of 2010. Cash and cash equivalents declined $6.9 million in 2011 as funds from deposit growth were invested into securities to build earning assets. Securities available for sale increased $23.5 million during 2011 as management purchased securities to use funds that were provided by deposit growth. Loans grew $3.2 million in 2011 with most of the growth coming from agricultural loans. Total deposits grew $13.5 million in 2011 due to increases in checking and savings deposits, which were partially offset by a decrease in certificates of deposit.

Securities

The Bank’s securities available for sale balances as of December 31 were as follows:

(Dollars in thousands)

	2011		2010
U.S. Government and federal agency	$	40,413	$	29,066
State and municipal		54,499		47,620
Mortgage-backed		9,780		7,599
Corporate		6,011		2,883
FDIC-guaranteed financial institution debt		2,038		2,053
Equity securities		1,535		1,599
Total	$	114,276	$	90,820

The securities available for sale portfolio increased $23.5 million from December 31, 2010 to December 31, 2011. ChoiceOne purchased a mix of government agency, municipal, mortgage-backed, and corporate securities totaling $43.7 million during 2011 to replace securities that matured or were called and to provide growth in earning assets. Approximately $16.6 million in various securities were called or matured in 2011. Principal payments for municipal and mortgage-backed securities totaling $2.1 million were received during 2011. Various securities totaling approximately $3.3 million were sold during 2011 for net gains totaling $129,000. Approximately $2.5 million of the sales that occurred in 2011 were sales of municipal securities as ChoiceOne lessened its exposure to certain issuers. The Bank’s Investment Committee continues to monitor the portfolio and purchases securities as it considers prudent. Also, certain securities are sold under agreements to repurchase and management plans to continue this practice as a low-cost source of funding.

State and municipal securities as of the end of 2011 included a security that matured on September 1, 2009 and was not redeemed by the issuer. A principal payment of $29,000 was received in October 2009 on the par value of $500,000. No further payments have been received. Impairment losses totaling $141,000 had been recorded in 2009 and 2010 due to uncertainty as to when or how much principal repayment would be received. Settlement was reached with the security’s issuer in December 2011 and ChoiceOne anticipates it will receive the remaining carrying value of its security in the first quarter of 2012.

Equity securities included a money market preferred security (MMP) of $768,000, a trust preferred security of $500,000, and preferred stock of $267,000 as of December 31, 2011 and an MMP of $838,000, a trust preferred security of $500,000, and preferred stock of $261,000 as of December 31, 2010. The MMP had a $232,000 unrealized loss as of December 31, 2011 that was recorded to other comprehensive income. Auctions remain active for this security and interest continues to be received.

Management will continue to monitor its municipal and equity securities closely in 2012. Securities may be sold if believed prudent from a risk standpoint.

12

Loans

The Bank’s loan portfolio as of December 31 was as follows:

(Dollars in thousands)

	2011		2010
Agricultural	$	38,929	$	29,681
Commercial and industrial		58,685		55,947
Consumer		18,657		16,709
Real estate - commercial		106,250		116,351
Real estate - construction		1,169		853
Real estate - residential		96,437		97,399
Total loans	$	320,127	$	316,940

The loan portfolio (excluding loans held for sale) increased $3.2 million from December 31, 2010 to December 31, 2011. Although loan growth occurred in 2011, loan demand continued to be challenging as the uncertain economy in Michigan affected the willingness of borrowers to assume debt. Growth of $9.2 million in agricultural loans and $2.7 million in commercial and industrial loans occurred as a result of officer calling activities. Marketing of consumer loan products contributed to the $1.9 million increase in the consumer loans balance. Commercial real estate loans declined $10.1 million in 2011 as reduced real estate collateral values impacted the ability to originate these loans.

Information regarding impaired loans can be found in Note 3 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 past due 90 days or more, which are considered troubled debt restructurings.

The balances of these nonperforming loans as of December 31 were as follows:

(Dollars in thousands)

	2011		2010
Loans accounted for on a nonaccrual basis	$	4,155	$	6,273
Loans contractually past due 90 days or more as to principal or interest payments		70		23
Loans considered troubled debt restructurings which are not included above		2,448		2,141
Total	$	6,673	$	8,437

Nonaccrual loans included $26,000 in agricultural loans, $143,000 in commercial and industrial loans, $22,000 in consumer loans, $2,790,000 in commercial real estate loans, and $1,174,000 in residential real estate loans as of December 31, 2011. Nonaccrual loans included $64,000 in agricultural loans, $256,000 in commercial and industrial loans, $5,000 in consumer loans, $3,302,000 in commercial real estate loans, and $2,646,000 in residential real estate loans as of December 31, 2010. The decreases in nonaccrual loans in 2011 were caused by charge-offs, transfers to other real estate owned, and payments received on loans. Loans considered troubled debt restructurings which were not on a nonaccrual basis and were not 90 days or more past due as to principal or interest payments consisted of $1,197,000 in commercial real estate loans and $1,251,000 of residential real estate loans at December 31, 2011, compared to $2,141,000 in residential real estate loans as of December 31, 2010. Troubled debt restructurings consist of loans where the terms have been modified to assist the borrowers in making their payments. The modifications can include capitalization of interest onto the principal balance, reduction in interest rate, and extension of the loan term.

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. These loans totaled $22.4 million as of December 31, 2011, compared to $21.2 million as of December 31, 2010.

13

Deposits and Other Funding Sources

The Bank’s deposit balances as of December 31 were as follows:

(Dollars in thousands)

	2011		2010
Noninterest-bearing demand deposits	$	78,263	$	66,932
Interest-bearing demand deposits		64,498		59,853
Money market deposits		63,007		59,021
Savings deposits		46,737		43,572
Local certificates of deposit		144,983		152,602
Brokered certificates of deposit		5,877		7,904
Total deposits	$	403,365	$	389,884

Total deposits increased $13.5 million from December 31, 2010 to December 31, 2011. Local deposits grew $15.5 million while brokered certificates of deposit declined $2.0 million since the end of 2010. Management believes that the local deposit growth was due in part to the attractiveness of FDIC-guaranteed deposits in contrast to the uncertainty of investments in the stock market. Deposit growth also resulted from new product offerings and calling efforts on business and municipal clients. The balances in all checking and savings account categories increased during the year while the balance of local certificates of deposit declined. Management believes that some of the local certificate of deposit decrease consisted of transfers into the other interest-bearing deposit accounts since the liquidity obtained offset the relatively small difference in the interest rate paid.

Securities sold under agreements to repurchase decreased $380,000 during 2011. The change was due to a slightly lower balance in sweep repurchase accounts used by the Bank’s local customers. Advances from the Federal Home Loan Bank of Indianapolis (“FHLB”) decreased $26,000 in 2011 due to payments on an amortizing advance. A blanket collateral agreement covering residential real estate loans was pledged against all outstanding advances at the end of 2011. Approximately $37 million of additional advances were available as of December 31, 2011 based on the collateral pledged.

In 2012, management will continue to focus its marketing efforts toward growth in local deposits. If local deposit growth is insufficient to support asset growth, management believes that advances from the FHLB, repurchase agreements and brokered certificates of deposit can address corresponding funding needs.

Shareholders’ Equity

Total shareholders’ equity increased $3.6 million from December 31, 2010 to December 31, 2011. The growth in equity resulted primarily from the retention of earnings in 2011 as net income exceeded dividends paid by $1.9 million and from an increase of $1.5 million in accumulated other comprehensive income. Issuances of common stock also contributed to the growth in 2011.

Note 21 to the consolidated financial statements presents regulatory capital information for the Bank at the end of 2011 and 2010. All three capital ratios presented increased slightly in 2011 as a result of more growth in capital than assets during the year. Management will monitor these capital ratios closely during 2012 as they relate to asset growth and earnings retention. ChoiceOne’s Board of Directors and management do not plan to allow capital to decrease below those levels necessary to be considered “well capitalized” by regulatory guidelines. The Board of Directors and management believe that ChoiceOne’s capital level as of December 31, 2011 is adequate for the foreseeable future.

Table 4 – Contractual Obligations

The following table discloses information regarding the maturity of ChoiceOne’s contractual obligations at December 31, 2011:

(Dollars in thousands)

	Payment Due By Period
Contractual Obligations	Total		Less than 1 year		1-3 Years		3-5 Years		More than 5 Years
Time deposits	$	150,860	$	107,117	$	30,805	$	11,935	$	1,003
Repurchase agreements		21,869		21,869		–		–		–
Advances from Federal Home Loan Bank		8,447		5,027		3,057		62		301
Operating leases		111		73		38		–		–
Other obligations		1,002		56		134		164		648
Total	$	182,289	$	134,142	$	34,034	$	12,161	$	1,952

14

Liquidity and Interest Rate Risk

Net cash from operating activities was $12.5 million for 2011 compared to $9.2 million for 2010. The effect of higher net income and higher proceeds from sales of other real estate owned caused the increase in 2011 compared to 2010. Cash used in investing activities was $31.1 million in 2011 compared to $16.4 million in 2010. The increase was caused by lower funds received from sales, maturities and payments received from securities and a higher usage of funds for loan growth. Cash flows from financing activities were $11.6 million in 2011 compared to $11.5 million in the prior year. The impact of less growth in deposits was offset by lower net payments of FHLB advances.

ChoiceOne’s primary market risk exposure occurs in the form of interest rate risk. Liquidity risk also can have an impact but to a lesser extent. ChoiceOne’s business is transacted in U.S. dollars with no foreign exchange risk exposure. Agricultural loans comprise a relatively small portion of ChoiceOne’s total assets. Management believes that ChoiceOne’s exposure to changes in commodity prices is insignificant.

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 purchased lines from correspondent banks, and advances available from the FHLB. Liquidity risk deals with ChoiceOne’s ability to meet its cash flow requirements. These requirements include depositors desiring to withdraw funds and borrowers seeking credit. Relatively short-term liquid funds exist in the form of lines of credit to purchase federal funds at three of the Bank’s correspondent banks. As of December 31, 2011, the amount of federal funds available for purchase from the Bank’s correspondent banks totaled approximately $23 million. ChoiceOne had no federal funds purchased at the end of 2011 or 2010. The Bank also has a line of credit secured by ChoiceOne’s commercial loans with the Federal Reserve Bank of Chicago for $36 million, which is designated for nonrecurring short-term liquidity needs. Longer-term liquidity needs may be met through local deposit growth, maturities of securities, normal loan repayments, advances from the FHLB, brokered certificates of deposit, and income retention. Approximately $37 million of borrowing capacity was available from the FHLB based on residential real estate loans pledged as collateral at year-end 2011. The acceptance of brokered certificates of deposit is not limited as long as the Bank’s capital to assets ratio is considered to be “well capitalized” under regulatory guidelines.

Interest rate risk is related to liquidity because each is affected by maturing assets and sources of funds. ChoiceOne’s Asset/Liability Management Committee (the “ALCO”) attempts to stabilize the interest rate spread and avoid possible adverse effects when unusual or rapid changes in interest rates occur. The ALCO uses a simulation model to measure the Bank’s interest rate risk. The model incorporates changes in interest rates on rate-sensitive assets and liabilities. The degree of rate sensitivity is affected by prepayment assumptions that exist in the assets and liabilities. One method the ALCO uses of measuring interest rate sensitivity is the ratio of rate-sensitive assets to rate-sensitive liabilities. An asset or liability is considered to be rate-sensitive if it matures or otherwise reprices within a given time frame.

15

Table 5 documents the maturity or repricing schedule for ChoiceOne’s rate-sensitive assets and liabilities for selected time periods.

Table 5 – Maturities and Repricing Schedule

(Dollars in thousands)

	As of December 31, 2011
	0-3 Months			3-12 Months			1-5 Years		Over 5 Years		Total
Assets
Securities available for sale	$	18,671		$	7,888		$	62,779	$	24,938	$	114,276
Federal Home Loan Bank stock		–			2,478			–		–		2,478
Federal Reserve Bank stock		–			–			–		1,271		1,271
Loans held for sale		1,262			–			–		–		1,262
Loans		122,007			95,079			95,476		7,565		320,127
Cash surrender value of life insurance policies		–			–			–		9,834		9,834
Rate-sensitive assets		141,940			105,445			158,255		43,608		449,248
Liabilities
Interest-bearing demand deposits		64,498			–			–		–		64,498
Savings deposits		46,737			–			–		–		46,737
Money market deposits		63,007			–			–		–		63,007
Certificates of deposit		42,362			64,651			42,844		1,003		150,860
Repurchase agreements		16,869			5,000			–		–		21,869
Advances from FHLB		6			5,021			3,119		301		8,447
Rate-sensitive liabilities		233,479			74,672			45,963		1,304		355,418
Rate-sensitive assets less rate-sensitive liabilities:
Asset (liability) gap for the period	$	(91,539	)	$	30,773		$	112,292	$	42,304	$	93,830
Cumulative asset (liability) gap	$	(91,539	)	$	(60,766	)	$	51,526	$	93,830

Under this method, the ALCO measures interest rate sensitivity by focusing on the one-year repricing gap. ChoiceOne’s ratio of rate-sensitive assets to rate-sensitive liabilities that matured or repriced within a one-year time frame was 80% at December 31, 2011, compared to 67% at December 31, 2010. Table 5 above shows the entire balance of interest-bearing demand deposits, savings deposits, money market deposits, and overnight repurchase agreements in the shortest repricing term. Although these categories have the ability to reprice immediately, management has some control over the actual timing or extent of the changes in interest rates on these liabilities. The ALCO plans to continue to monitor the ratio of rate-sensitive assets to rate-sensitive liabilities on a quarterly basis in 2012. As interest rates change during 2012, the ALCO will attempt to match its maturing assets with corresponding liabilities to maximize ChoiceOne’s net interest income.

Another method the ALCO uses to monitor its interest rate sensitivity is to subject rate-sensitive assets and liabilities to interest rate shocks. At December 31, 2011, management used a simulation model to subject its assets and liabilities up to an immediate 400 basis point increase. The maturities of loans and mortgage-backed securities were affected by certain prepayment assumptions. Maturities for interest-bearing core deposits were based on an estimate of the period over which they would be outstanding. The maturities of advances from the FHLB were based on their contractual maturity dates. In the case of variable rate assets and liabilities, repricing dates were used to determine their values. The simulation model measures the effect of immediate interest rate changes on both net interest income and shareholders’ equity.

Table 6 provides an illustration of hypothetical interest rate changes as of December 31, 2011 and 2010, respectively:

16

Table 6 – Sensitivity to Changes in Interest Rates

	2011
(Dollars in thousands)	Net Interest Income		Percent Change			Market Value of Equity		Percent Change
Change in Interest Rates
400 basis point rise	$	18,346		+ 4	%	$	72,748		- 12	%
300 basis point rise		18,229		+ 3	%		76,878		- 7	%
200 basis point rise		18,023		+ 2	%		79,279		- 4	%
100 basis point rise		17,787		+ 1	%		81,377		- 1	%
Base rate scenario		17,630		–	%		82,249		–	%
100 basis point decline		17,381		- 1	%		77,911		- 5	%
200 basis point decline		17,073		- 3	%		70,812		- 14	%
300 basis point decline		16,868		- 4	%		70,806		- 14	%
400 basis point decline		16,837		- 4	%		70,766		- 14	%

	2010
(Dollars in thousands)	Net Interest Income		Percent Change			Market Value of Equity		Percent Change
Change in Interest Rates
400 basis point rise	$	17,936		+ 2	%	$	68,278		- 15	%
300 basis point rise		17,896		+ 2	%		71,110		- 12	%
200 basis point rise		17,853		+ 1	%		74,274		-8	%
100 basis point rise		17,541		–	%		77,547		- 4	%
Base rate scenario		17,606		–	%		80,508		–	%
15 basis point decline		17,587		- 1	%		80,698		–	%

As of both December 31, 2011 and December 31, 2010, the Bank was within its guidelines for immediate rate shocks up and down for both net interest income and the market value of shareholders’ equity. The ALCO plans to continue to monitor the effect of changes in interest rates on both net interest income and shareholders’ equity and will make changes in the duration of its rate-sensitive assets and rate-sensitive liabilities where necessary.

17

ChoiceOne Financial Services, Inc.

Management’s Report on Internal Control Over Financial Reporting

Management of ChoiceOne Financial Services, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting that is designed to produce reliable financial statements in conformity with United States generally accepted accounting principles. The system of internal control over financial reporting as it relates to the financial statements is evaluated for effectiveness by management and tested for reliability through a program of internal audits. Actions are taken to correct potential deficiencies as they are identified. Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation.

Management assessed the effectiveness of the Company’s system of internal control over financial reporting as of December 31, 2011, as required by Section 404 of the Sarbanes-Oxley Act of 2002. Management’s assessment is based on the criteria for effective internal control over financial reporting as described in “Internal Control – Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management has concluded that, as of December 31, 2011, its system of internal control over financial reporting was effective and meets the criteria of the “Internal Control – Integrated Framework.” This annual report is not required to include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting.

James A. Bosserd President and Chief Executive Officer	Thomas L. Lampen Treasurer
March 28, 2012	March 28, 2012

18

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors

of ChoiceOne Financial Services, Inc.

We have audited the accompanying consolidated balance sheet of ChoiceOne Financial Services, Inc. as of December 31, 2011 and 2010, and the related consolidated statements of income, shareholders’ equity, and cash flows for each year in the three-year period ended December 31, 2011. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of ChoiceOne Financial Services, Inc. as of December 31, 2011 and 2010, and the consolidated results of its operations and its cash flows for each year in the three-year period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.

Plante & Moran, PLLC

Auburn Hills, Michigan

March 28, 2012

19

ChoiceOne Financial Services, Inc.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

	December 31
	2011			2010
Assets
Cash and due from banks	$	17,125		$	19,074
Federal funds sold		–			5,000
Cash and cash equivalents		17,125			24,074
Securities available for sale (Note 2)		114,276			90,820
Federal Home Loan Bank stock		2,478			2,889
Federal Reserve Bank stock		1,271			1,270
Loans held for sale		1,262			1,610
Loans (Note 3)		320,127			316,940
Allowance for loan losses (Note 3)		(5,213	)		(4,729	)
Loans, net		314,914			312,211
Premises and equipment, net (Note 5)		12,080			12,525
Other real estate owned, net (Note 7)		1,934			1,953
Cash value of life insurance policies		9,834			9,520
Intangible assets, net (Note 6)		2,172			2,620
Goodwill (Note 6)		13,728			13,728
Other assets		4,840			7,304
Total assets	$	495,914		$	480,524
Liabilities
Deposits – noninterest-bearing (Note 8)	$	78,263		$	66,932
Deposits – interest-bearing (Note 8)		325,102			322,952
Total deposits		403,365			389,884
Repurchase agreements (Note 9)		21,869			22,249
Advances from Federal Home Loan Bank (Note 10)		8,447			8,473
Other liabilities (Notes 11 and 13)		4,329			5,605
Total liabilities		438,010			426,211
Shareholders’ Equity (Note 21)
Preferred stock; shares authorized: 100,000; shares outstanding: none		–			–
Common stock and paid-in capital, no par value; shares authorized: 7,000,000; shares outstanding: 3,293,269 in 2011 and 3,280,515 in 2010 (Note 14)		46,602			46,461
Retained earnings		8,887			6,952
Accumulated other comprehensive income, net (Note 16)		2,415			900
Total shareholders’ equity		57,904			54,313
Total liabilities and shareholders’ equity	$	495,914		$	480,524

See accompanying notes to consolidated financial statements.

20

ChoiceOne Financial Services, Inc.

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)

	Years ended December 31
	2011		2010			2009
Interest income
Loans, including fees	$	18,398	$	19,081		$	19,915
Securities
Taxable		1,789		1,460			1,390
Tax exempt		1,268		1,398			1,774
Other		20		22			7
Total interest income		21,475		21,961			23,086
Interest expense
Deposits		2,956		3,914			5,553
Advances from Federal Home Loan Bank		307		748			1,186
Other borrowings		290		304			351
Total interest expense		3,553		4,966			7,090
Net interest income		17,922		16,995			15,996
Provision for loan losses (Note 3)		3,700		3,950			4,875
Net interest income after provision for loan losses		14,222		13,045			11,121
Noninterest income
Customer service charges		3,454		3,160			3,177
Insurance and investment commissions		672		690			690
Gains on sales of loans (Note 4)		672		682			601
Gains on sales of securities (Note 2)		129		537			402
Loss on other than temporary impairment of securities (Note 2)		–		(94	)		(47	)
Gains (losses) on sales and write-downs of other assets (Note 7)		29		(432	)		(434	)
Earnings on life insurance policies		354		360			365
Other income		829		666			667
Total noninterest income		6,139		5,569			5,421
Noninterest expense
Salaries and benefits (Notes 13 and 14)		7,348		7,040			6,902
Occupancy and equipment (Note 5)		2,247		2,157			2,227
Data processing		1,740		1,651			1,599
Professional fees		793		675			629
Supplies and postage		517		497			504
Advertising and promotional		160		168			124
Intangible asset amortization (Note 6)		448		448			469
Loan and collection expense		575		678			777
FDIC insurance		488		641			785
Other expense		1,472		1,294			1,243
Total noninterest expense		15,788		15,249			15,259
Income before income tax		4,573		3,365			1,283
Income tax expense/(benefit) (Note 11)		1,060		654			(195	)
Net income	$	3,513	$	2,711		$	1,478
Basic earnings per common share (Note 15)	$	1.07	$	0.83		$	0.45
Diluted earnings per common share (Note 15)	$	1.07	$	0.83		$	0.45
Dividends declared per common share	$	0.48	$	0.48		$	0.48

See accompanying notes to consolidated financial statements.

21

ChoiceOne Financial Services, Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Dollars in thousands, except per share data)

	Number of Shares			Common Stock and Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Income, Net			Total
Balance, January 1, 2009		3,246,109		$	46,171		$	5,898		$	116		$	52,185
Comprehensive income:
Net income								1,478						1,478
Net change in unrealized gain on securities available for sale											665			665
Net change in funded status of post- retirement benefit plan											6			6
Total comprehensive income														2,149
Shares issued		19,605			126									126
Change in ESOP repurchase obligation					(4	)								(4	)
Stock-based compensation					22									22
Effect of employee stock purchases					11									11
Cash dividends declared ($0.48 per share)								(1,563	)					(1,563	)
Balance, December 31, 2009		3,265,714		$	46,326		$	5,813		$	787		$	52,926
Comprehensive income:
Net income								2,711						2,711
Net change in unrealized gain on securities available for sale											127			127
Net change in funded status of post- retirement benefit plan											(14	)		(14	)
Total comprehensive income														2,824
Shares issued		14,805			125									125
Shares cancelled		(4	)		–									–
Change in ESOP repurchase obligation					(16	)								(16	)
Stock-based compensation					15									15
Effect of employee stock purchases					11									11
Cash dividends declared ($0.48 per share)								(1,572	)					(1,572	)
Balance, December 31, 2010		3,280,515		$	46,461		$	6,952		$	900		$	54,313
Comprehensive income:
Net income								3,513						3,513
Net change in unrealized gain on securities available for sale											1,530			1,530
Net change in funded status of post- retirement benefit plan											(15	)		(15	)
Total comprehensive income														5,028
Shares issued		12,754			127									127
Change in ESOP repurchase obligation					(1	)								(1	)
Stock-based compensation					5									5
Effect of employee stock purchases					10									10
Cash dividends declared ($0.48 per share)								(1,578	)					(1,578	)
Balance, December 31, 2011		3,293,269		$	46,602		$	8,887		$	2,415		$	57,904

See accompanying notes to consolidated financial statements.

22

ChoiceOne Financial Services, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

	Years ended December 31
	2011			2010			2009
Cash flows from operating activities:
Net income	$	3,513		$	2,711		$	1,478
Adjustments to reconcile net income to net cash from operating activities:
Provision for loan losses		3,700			3,950			4,875
Depreciation		944			903			974
Amortization		1,300			1,173			1,102
Compensation expense on stock options and employee purchases		15			26			33
Gains on sales of securities		(129	)		(537	)		(402	)
Loss on other than temporary impairment of securities		—			94			47
Gains on sales of loans		(672	)		(682	)		(601	)
Loans originated for sale		(25,685	)		(28,816	)		(27,598	)
Proceeds from loan sales		26,611			28,088			27,983
Earnings on bank-owned life insurance		(354	)		(360	)		(365	)
(Gains)/losses on sales of other real estate owned		(279	)		(96	)		7
Write-downs of other real estate owned		255			528			442
Proceeds from sales of other real estate owned		3,015			1,174			4,200
Deferred federal income tax expense/(benefit)		378			(163	)		(410	)
Net change in:
Other assets		2,391			875			(2,289	)
Other liabilities		(2,458	)		357			(241	)
Net cash from operating activities		12,545			9,225			9,235
Cash flows from investing activities:
Sales of securities available for sale		3,310			6,059			8,171
Maturities, prepayments and calls of securities available for sale		18,687			22,271			27,180
Purchases of securities available for sale		(43,651	)		(44,063	)		(31,269	)
Purchase of Federal Reserve Bank stock		(1	)		—			(1	)
Sale of Federal Home Loan Bank stock		411			—			—
Loan originations and payments, net		(9,375	)		875			(4,381	)
Additions to premises and equipment		(499	)		(1,510	)		(816	)
Net cash from investing activities		(31,118	)		(16,368	)		(1,116	)
Cash flows from financing activities:
Net change in deposits		13,481			24,874			18,012
Net change in repurchase agreements		(380	)		1,565			1,898
Proceeds from Federal Home Loan Bank advances		250			—			37,000
Payments on Federal Home Loan Bank advances		(276	)		(13,525	)		(55,002	)
Issuance of common stock		127			125			126
Cash dividends		(1,578	)		(1,572	)		(1,563	)
Net cash from financing activities		11,624			11,467			471
Net change in cash and cash equivalents		(6,949	)		4,324			8,590
Beginning cash and cash equivalents		24,074			19,750			11,160
Ending cash and cash equivalents	$	17,125		$	24,074		$	19,750
Supplemental disclosures of cash flow information:
Cash paid for interest	$	3,608		$	5,112		$	7,288
Cash paid for income taxes		765			285			31
Loans transferred to other real estate owned		2,972			1,358			3,489
Other real estate owned transferred to premises and equipment		—			—			331

See accompanying notes to consolidated financial statements.

23

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., its wholly-owned subsidiary, ChoiceOne Bank, and ChoiceOne Bank’s wholly-owned subsidiary, ChoiceOne Insurance Agencies, Inc. (together referred to as “ChoiceOne”). Intercompany transactions and balances have been eliminated in consolidation.

Nature of Operations

ChoiceOne Bank (the “Bank”) is a full-service community bank that offers commercial, consumer, and real estate loans as well as traditional demand, savings and time deposits to both commercial and consumer clients in portions of Kent, Muskegon, Newaygo, and Ottawa counties in Michigan. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and real estate. Commercial loans are expected to be repaid from the cash flows from operations of businesses. Real estate loans are collateralized by either residential or commercial real estate.

ChoiceOne Insurance Agencies, Inc. (the “Insurance Agency”) is a wholly-owned subsidiary of the Bank. The Insurance Agency sells insurance policies such as life and health for both commercial and consumer clients. The Insurance Agency also offers alternative investment products such as annuities and mutual funds through a registered broker.

Together, the Bank and the Insurance Agency account for substantially all of ChoiceOne’s assets, revenues and operating income.

Use of Estimates

To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, ChoiceOne’s management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided. Actual results may differ from these estimates. Estimates associated with securities available for sale, the allowance for loan losses, other real estate owned, core deposit intangible assets, loan servicing rights, goodwill, and fair values of certain financial instruments are particularly susceptible to change.

Cash and Cash Equivalents

Cash and cash equivalents are defined to include cash on hand, demand deposits with other banks, and federal funds sold. Cash flows are reported on a net basis for customer loan and deposit transactions, deposits with other financial institutions, and short-term borrowings with original terms of 90 days or less.

Securities

Securities are classified as available for sale because they might be sold before maturity. Securities classified as available for sale are carried at fair value, with unrealized holding gains and losses reported separately in the accumulated other comprehensive income or loss section of shareholders’ equity, net of tax effect. Restricted investments in Federal Reserve Bank stock and Federal Home Loan Bank stock are carried at cost. Equity securities consist of investments in preferred stock, trust-preferred securities, and investments in common stock of other financial institutions.

Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized using the level-yield method without anticipating prepayments. Gains or losses on sales are recorded on the trade date based on the amortized cost of the security sold.

Management evaluates securities for other-than-temporary impairment (“OTTI”) on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The evaluation of securities includes consideration given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, whether the market decline was affected by macroeconomic conditions and whether ChoiceOne has the intent to sell the security or more likely than not will be required to sell the security before its anticipated recovery. In analyzing an issuer’s financial condition, management may consider whether the securities are issued by the federal government or its agencies, or U.S. Government sponsored enterprises, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether ChoiceOne intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis. If ChoiceOne intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment. If a security is determined to be other-than-temporarily impaired, but ChoiceOne does not intend to sell the security, only the credit portion of the estimated loss is recognized in earnings, with the other portion of the loss recognized in other comprehensive income.

24

ChoiceOne Financial Services, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned interest, deferred loan fees and costs, and an allowance for loan losses. Loans held for sale are reported at the lower of cost or market, on an aggregate basis.

Interest income on loans is reported on the interest method and includes amortization of net deferred loan fees and costs over the estimated loan term. Interest on loans is accrued based upon the principal balance outstanding. The accrual of interest is discontinued at the time at which commercial loans are 90 days past due unless the loan is secured by sufficient collateral and in the process of collection. Interest on consumer or real estate secured loans is discontinued at the time at which the loan is 120 days past due unless the credit is secured by sufficient collateral and in the process of collection. Past due status is based on the contractual terms of the loan. In all cases, loans are placed into nonaccrual status or charged off at an earlier date if collection of principal or interest is considered doubtful. Interest accrued but not received is reversed against interest income when the loans are placed into nonaccrual status. Interest received on such loans is applied to principal until qualifying for return to accrual. Loans are returned to accrual basis when all the principal and interest amounts contractually due are brought current and future payment is reasonably assured.

Allowance for Loan Losses

The allowance for loan losses is a valuation allowance for probable incurred credit losses. The allowance is increased by the provision for loan losses and decreased by loans charged off less any recoveries of charged off loans. Management estimates the allowance balance required based on past loan loss experience, the nature and volume of the loan portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off. Loan losses are charged against the allowance when management believes the collectibility of a loan balance is not possible.

The allowance consists of general and specific components. The general component covers non-classified loans and is based on historical loss experience adjusted for current factors. The specific component relates to loans that are individually classified as impaired or loans otherwise classified as substandard or doubtful.

A loan is impaired when full payment under the loan terms is not expected. Commercial loans are evaluated for impairment on an individual loan basis. If a loan is considered impaired, a portion of the allowance for loan losses is allocated to the loan so that it is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans such as consumer and real estate mortgage loans are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures.

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation. Land is carried at cost. Land improvements are depreciated using the straight-line method with useful lives ranging from 7 to 15 years. Building and related components are depreciated using the straight-line method with useful lives ranging from 5 to 39 years. Leasehold improvements are depreciated over the shorter of the estimated life or the lease term. Furniture and equipment are depreciated using the straight-line method with useful lives ranging from 3 to 7 years. Fixed assets are periodically reviewed for impairment when events indicate their carrying amounts may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.

Other Real Estate Owned

Real estate properties acquired in the collection of a loan are initially recorded at fair value at acquisition establishing a new cost basis. Any reduction to fair value from the carrying value of the related loan is accounted for as a loan loss. After acquisition, a valuation allowance reduces the reported amount to the lower of the initial amount or fair value less costs to sell. Expenses to repair or maintain properties are included within other noninterest expenses. Gains and losses upon disposition and changes in the valuation allowance are reported net within other noninterest income.

Loan Servicing Rights

Servicing rights represent the allocated value of servicing rights on loans sold with servicing retained. Servicing rights are expensed in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair value of the rights, using groupings of the underlying loans as to interest rates and then, secondarily, as to geographic and prepayment characteristics. Fair value is determined using prices for similar assets with similar characteristics when available or based upon discounted cashflows using market-based assumptions. Any impairment of a grouping is reported as a valuation allowance.

25

ChoiceOne Financial Services, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Goodwill

Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of the acquired tangible assets and liabilities and identifiable intangible assets. Goodwill is assessed at least annually for impairment and any such impairment will be recognized in the period identified.

Loan Commitments and Related Financial Instruments

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet financing needs of customers. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

Employee Benefit Plans

ChoiceOne’s 401(k) plan allows participants to contribute up to the IRS maximum. Contributions from ChoiceOne to its 401(k) plan are discretionary. ChoiceOne also allows retired employees to participate in its health insurance plan. Employees who have attained age 55 and completed at least ten years of service to ChoiceOne are eligible to participate as a retiree until they are eligible for Medicare. These postretirement benefits are accrued during the years in which the employee provides service.

Employee Stock Ownership Plan

The cost of shares issued to the Employee Stock Ownership Plan (the “ESOP”) but not yet allocated to participants is presented as a reduction of shareholders’ equity. Compensation expense is recorded based on the market price of the shares as they are committed to be released for allocation to participant accounts. The difference between the market price and the cost of shares committed to be released is recorded as an adjustment to additional paid-in capital. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings while dividends on unallocated ESOP shares are reflected as a reduction of debt and accrued interest. Upon distribution of shares to a participant, the participant has the right to require the Company to purchase his or her shares at fair value in accordance with the terms and conditions of the ESOP. As such, these shares are not classified in shareholders’ equity as permanent equity.

Income Taxes

Income tax expense is the sum of the current year income tax due and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

Earnings Per Share

Basic earnings per common share (“EPS”) is based on weighted-average common shares outstanding. The weighted-average number of shares used in the computation of basic and diluted EPS includes shares allocated to the ESOP. Diluted EPS further assumes issue of any dilutive potential common shares issuable under stock options.

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income or loss. Other comprehensive income or loss includes unrealized gains and losses on securities available for sale, net of tax, and changes in the funded status of postretirement plans which are also recognized as a separate component of shareholders’ equity.

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe that there are any such matters that may have a material effect on the financial statements.

Cash Restrictions

Cash on hand or on deposit with the Federal Reserve Bank of $111,000 and $83,000 was required to meet regulatory reserve and clearing requirements at December 31, 2011 and 2010, respectively. The balance in excess of the amount required was interest-bearing as of December 31, 2011 and December 31, 2010.

Stock-Based Compensation

ChoiceOne records stock-based compensation cost using the fair value method. Compensation costs related to stock options granted is disclosed in Note 14.

26

ChoiceOne Financial Services, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Dividend Restrictions

Banking regulations require the maintenance of certain capital levels and may limit the amount of dividends that may be paid by the Bank to ChoiceOne (see Note 21).

Fair Value of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, which are more fully documented in Note 19 to the consolidated financial statements. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Operating Segments

While ChoiceOne’s management monitors the revenue streams of various products and services for the Bank and Insurance Agency, operations and financial performance are evaluated on a company-wide basis. Accordingly, all of the financial service operations are considered by management to be aggregated into one reportable operating segment.

Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (“FASB”) issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (“ASU 2011-08”). The standard clarifies existing fair value measurement and disclosure requirements and changes existing principles and disclosure guidance. Clarifications were made to the relevancy of the highest and best use valuation concept, measurement of an instrument classified in an entity’s shareholder’s equity and disclosure of quantitative information about the unobservable inputs for level 3 fair value measurements. Changes to existing principles and disclosures included measurement of financial instruments managed within a portfolio, the application of premiums and discounts in fair value measurement, and additional disclosures related to fair value measurements. The updated guidance and requirements are effective for financial statements issued for the first interim or annual period beginning after December 15, 2011, and will be applied prospectively. The adoption of this standard is not expected to have a material effect on ChoiceOne’s consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). This standard requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but continuous statements. This standard eliminates the option to present the components of other comprehensive income (OCI) as part of the statement of equity. This standard is effective for fiscal years ending after December 15, 2012. The implementation of this standard will only change the presentation of comprehensive income; it will not have an impact on ChoiceOne’s consolidated financial position or results of operations. In December 2011, the FASB issued ASU 2011-12. This standard defers the requirement to present reclassification adjustments for each component of OCI in both net income and OCI on the face of the financial statements.

In September 2011, the FASB issued ASU No. 2011-08, Intangibles – Goodwill and Other: Testing Goodwill for Impairment (“ASU 2011-08”), to simplify how entities test goodwill for impairment. Prior to ASU 2011-08, an entity was required to perform a two-step test to assess goodwill for impairment. The first step compared the fair value of a reporting unit to its carrying amount, including goodwill. If the fair value of the reporting unit was less than its carrying value, the second step was used to measure the amount of the impairment loss, if any. ASU 2011-08 permits an entity to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing appropriate events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then it is not required to perform the two-step impairment test for the reporting unit. ASU 2011-08 applies to both an entity’s annual and interim goodwill impairment tests. ASU 2011-08 is effective for fiscal years beginning after December 15, 2011 and early adoption is permitted. ChoiceOne plans to adopt ASU 2011-08 as of January 1, 2012. The adoption of ASU 2011-08 is not expected to have a material impact on ChoiceOne’s consolidated financial condition or results of operations.

Reclassifications

Certain amounts presented in prior year consolidated financial statements have been reclassified to conform to the current year’s presentation.

27

ChoiceOne Financial Services, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 – Securities

The fair value of securities available for sale and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) at December 31 were as follows:

(Dollars in thousands)

	2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Government and federal agency	$	39,829	$	584	$	—		$	40,413
State and municipal		51,859		2,729		(89	)		54,499
Mortgage-backed		9,511		276		(7	)		9,780
Corporate		5,914		100		(3	)		6,011
FDIC-guaranteed financial institution debt		2,010		28		—			2,038
Equity securities		1,751		16		(232	)		1,535
Total	$	110,874	$	3,733	$	(331	)	$	114,276

(Dollars in thousands)	2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Government and federal agency	$	28,737	$	382	$	(53	)	$	29,066
State and municipal		47,067		926		(373	)		47,620
Mortgage-backed		7,307		298		(6	)		7,599
Corporate		2,854		36		(7	)		2,883
FDIC-guaranteed financial institution debt		2,020		33		—			2,053
Equity securities		1,752		9		(162	)		1,599
Total	$	89,737	$	1,684	$	(601	)	$	90,820

Information regarding sales of securities available for sale follows:

(Dollars in thousands)

	2011		2010		2009
Proceeds from sales of securities	$	3,310	$	6,059	$	8,171
Gross realized gains		133		540		414
Gross realized losses		4		3		12
Loss on other than temporary impairment		—		94		47

Contractual maturities of securities available for sale at December 31, 2011 were as follows:

(Dollars in thousands)

	Fair Value
Due within one year	$	22,840
Due after one year through five years		56,661
Due after five years through ten years		22,872
Due after ten years		588
Total debt securities		102,961
Mortgage-backed securities, not due at a specific date		9,780
Equity securities		1,535
Total	$	114,276

28

ChoiceOne Financial Services, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Various securities were pledged as collateral for securities sold under agreements to repurchase. The carrying amount of securities pledged as collateral at December 31 was as follows:

(Dollars in thousands)

	2011		2010
Securities pledged for securities sold under agreements to repurchase	$	27,421	$	27,509

Securities with unrealized losses at year-end 2011 and 2010, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, were as follows:

(Dollars in thousands)

	2011
	Less than 12 months					More than 12 months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
State and municipal	$	2,938		$              (28	)	$	1,245		$            (61	)	$	4,183		$                (89	)
Mortgage-backed		2,045		(7	)		–		–			2,045		(7	)
Corporate		1,023		(3	)		–		–			1,023		(3	)
Equity securities		–		–			768		(232	)		768		(232	)
Total temporarily impaired	$	6,006		$              (38	)	$	2,013		$          (293	)	$	8,019		$              (331	)
(Dollars in thousands)	2010
	Less than 12 months					More than 12 months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Government and federal agency	$	4,663	$	(53	)	$	–	$	–		$	4,663	$	(53	)
State and municipal		11,341		(297	)		1,460		(76	)		12,801		(373	)
Mortgage-backed		938		(6	)		–		–			938		(6	)
Corporate		540		(7	)		–		–			540		(7	)
Equity securities		–		–			838		(162	)		838		(162	)
Total temporarily impaired	$	17,482	$	(363	)	$	2,298	$	(238	)	$	19,780	$	(601	)

One municipal security with a fair value of $306,000 was considered to be other than temporarily impaired as of December 31, 2011. The issuer of the security defaulted upon its maturity of September 1, 2009. Impairment losses of $47,000 in 2009 and $94,000 in 2010 had been recorded due to uncertainty as to when principal repayment would be received. Settlement was reached with the security’s issuer in December 2011 and ChoiceOne anticipates it will receive the remaining carrying value of its security in the first quarter of 2012. In the case of the remaining state and municipal securities, ChoiceOne does not intend to sell the securities prior to a recovery in their value nor is it likely that ChoiceOne would be forced to sell them. Equity securities included a Money Market Preferred auction rate security (MMP) with a fair value of $768,000 as of December 31, 2011. Auctions remain active for the MMP and interest payments have remained current.

ChoiceOne evaluates all securities on a quarterly basis for other than temporary impairment. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of ChoiceOne to retain its investment in the issue for a period of time sufficient to allow for any anticipated recovery in fair value. No other than temporary impairments were recorded in 2011 and the impairment described in the previous paragraph was the only other than temporary impairment recorded in 2010.

29

ChoiceOne Financial Services, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 – Loans and Allowance for Loan Losses

The Bank’s loan portfolio as of December 31 was as follows:

(Dollars in thousands)

	2011			2010
Agricultural	$	38,929		$	29,681
Commercial and industrial		58,685			55,947
Consumer		18,657			16,709
Real estate – commercial		106,250			116,351
Real estate - construction		1,169			853
Real estate - residential		96,437			97,399
Loans, gross		320,127			316,940
Allowance for loan losses		(5,213	)		(4,729	)
Loans, net	$	314,914		$	312,211

Activity in the allowance for loan losses was as follows:

(Dollars in thousands)

	2011			2010			2009
Balance, beginning of year	$	4,729		$	4,322		$	3,600
Provision charged to expense		3,700			3,950			4,875
Recoveries credited to the allowance		452			341			541
Loans charged off		(3,668	)		(3,884	)		(4,694	)
Balance, end of year	$	5,213		$	4,729		$	4,322

ChoiceOne manages its credit risk through the use of its loan policy and its loan approval process and by monitoring of loan credit performance. The loan approval process for commercial loans involves individual and group approval authorities. Individual authority levels are based on the experience of the lender. Group authority approval levels can consist of an internal loan committee that includes the Bank’s President or Senior Lender and other loan officers for loans that exceed individual approval levels, or a loan committee of the Board of Directors for larger commercial loans. Most consumer loans are approved by individual loan officers based on standardized underwriting criteria, with larger consumer loans subject to approval by the internal loan committee.

Ongoing credit review of commercial loans is the responsibility of the loan officers. ChoiceOne’s internal credit committee meets at least monthly and reviews loans with payment issues and loans with a risk rating of 5, 6, or 7. Risk ratings of commercial loans are reviewed periodically and adjusted if needed. ChoiceOne’s consumer loan portfolio is primarily monitored on an exception basis. Loans where payments are past due are turned over to the Bank’s collection department, who works with the borrower to bring payments current or takes other actions when necessary. In addition to internal reviews of credit performance, ChoiceOne contracts with a third party for independent loan review that monitors the loan approval process and the credit quality of the loan portfolio.

30

ChoiceOne Financial Services, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Activity in the allowance for loan losses and balances in the loan portfolio were as follows:

(Dollars in thousands)

	Agricultural			Commercial and Industrial			Consumer			Commercial Real Estate			Construction Real Estate			Residential Real Estate			Unallocated			Total
2011
Allowance for Loan Losses
Beginning balance	$	181		$	641		$	243		$	1,729		$	2		$	1,554		$	379		$	4,729
Charge-offs		(45	)		(228	)		(361	)		(1,357	)		–			(1,677	)		–			(3,668	)
Recoveries		10			32			217			89			–			104			–			452
Provision		(91	)		164			98			1,838			32			1,866			(207	)		3,700
Ending balance	$	55		$	609		$	197		$	2,299		$	34		$	1,847		$	172		$	5,213
Individually evaluated for impairment	$	–		$	7		$	–		$	424		$	–		$	–		$	–		$	431
Collectively evaluated for impairment	$	55		$	602		$	197		$	1,875		$	34		$	1,847		$	172		$	4,782
Loans
Individually evaluated for impairment	$	–		$	163		$	–		$	2,758		$	–		$	1,580					$	4,501
Collectively evaluated for impairment		38,929			58,522			18,657			103,492			1,169			94,857						315,626
Ending balance	$	38,929		$	58,685		$	18,657		$	106,250		$	1,169		$	96,437					$	320,127
2010
Allowance for Loan Losses
Beginning balance	$	124		$	735		$	306		$	1,546		$	3		$	1,590		$	18		$	4,322
Charge-offs		–			(765	)		(444	)		(1,523	)		–			(1,152	)		–			(3,884	)
Recoveries		–			68			230			16			–			27			–			341
Provision		57			603			151			1,690			(1	)		1,089			361			3,950
Ending balance	$	181		$	641		$	243		$	1,729		$	2		$	1,554		$	379		$	4,729
Individually evaluated for impairment	$	–		$	50		$	–		$	531		$	–		$	–		$	–		$	581
Collectively evaluated for impairment	$	181		$	591		$	243		$	1,198		$	2		$	1,554		$	379		$	4,148
Loans
Individually evaluated for impairment	$	39		$	272		$	–		$	3,529		$	–		$	2,733					$	6,573
Collectively evaluated for impairment		29,642			55,675			16,709			112,822			853			94,666						310,367
Ending balance	$	29,681		$	55,947		$	16,709		$	116,351		$	853		$	97,399					$	316,940

31

ChoiceOne Financial Services, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	Agricultural		Commercial and Industrial			Consumer			Commercial Real Estate			Construction Real Estate			Residential Real Estate			Unallocated			Total
2009
Allowance for Loan Losses
Beginning balance	$	–	$	754		$	351		$	1,100		$	5		$	1,124		$	266		$	3,600
Charge-offs		–		(1,558	)		(535	)		(1,218	)		(14	)		(1,369	)		–			(4,694	)
Recoveries		–		102			246			58			29			106			–			541
Provision		124		1,437			244			1,606			(17	)		1,729			(248	)		4,875
Ending balance	$	124	$	735		$	306		$	1,546		$	3		$	1,590		$	18		$	4,322
Individually evaluated for impairment	$	29	$	52		$	–		$	1,031		$	–		$	–		$	–		$	1,112
Collectively evaluated for impairment	$	95	$	683		$	306		$	515		$	3		$	1,590		$	18		$	3,210
Loans
Individually evaluated for impairment	$	378	$	698		$	–		$	6,886		$	–		$	1,785					$	9,747
Collectively evaluated for impairment		30,944		53,266			16,285			114,214			1,158			97,102						312,969
Ending balance	$	31,322	$	53,964		$	16,285		$	121,100		$	1,158		$	98,887					$	322,716

The process to monitor the credit quality of ChoiceOne’s loan portfolio includes tracking (1) the risk ratings of business loans, (2) the level of classified business loans, and (3) delinquent and nonperforming consumer loans. Business loans are risk rated on a scale of 1 to 8. A description of the characteristics of the ratings follows:

Risk rating 1 through 3: These loans are considered pass credits. They exhibit acceptable to exceptional credit risk and demonstrate the ability to repay the loan from normal business operations.

Risk rating 4: These loans are considered watch credits. They have potential developing weaknesses that, if not corrected, may cause deterioration in the ability of the borrower to repay the loan. While a loss is possible for a loan with this rating, it is not anticipated.

Risk rating 5: These loans are considered special mention credits. Loans in this risk rating are considered to be inadequately protected by the net worth and debt service coverage of the borrower or of any pledged collateral. These loans have well defined weaknesses that may jeopardize the borrower’s ability to repay the loan. If the weaknesses are not corrected, loss of principal and interest could be probable.

Risk rating 6: These loans are considered substandard credits. These loans have well defined weaknesses, the severity of which makes collection of principal and interest in full questionable. Loans in this category may be placed on nonaccrual status.

Risk rating 7: These loans are considered doubtful credits. Some loss of principal and interest has been determined to be probable. The estimate of the amount of loss could be affected by factors such as the borrower’s ability to provide additional capital or collateral. Loans in this category are on nonaccrual status.

Risk rating 8: These loans are considered loss credits. They are considered uncollectible and will be charged off against the allowance for loan losses.

32

ChoiceOne Financial Services, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information regarding the Bank’s credit exposure as of December 31 was as follows:

(Dollars in thousands)

Corporate Credit Exposure - Credit Risk Profile By Creditworthiness Category

	Agricultural				Commercial and Industrial				Commercial Real Estate
	2011		2010		2011		2010		2011		2010
Risk ratings 1 to 3	$	26,697	$	19,493	$	34,258	$	32,624	$	51,437	$	64,020
Risk rating 4		9,499		8,919		21,993		20,198		33,462		31,921
Risk rating 5		2,672		1,017		1,669		2,703		14,313		14,069
Risk rating 6		57		213		680		251		5,009		5,412
Risk rating 7		4		39		85		171		2,029		929
	$	38,929	$	29,681	$	58,685	$	55,947	$	106,250	$	116,351

Consumer Credit Exposure - Credit Risk Profile Based On Payment Activity

	Consumer				Construction Real Estate				Residential Real Estate
	2011		2010		2011		2010		2011		2010
Performing	$	18,634	$	16,519	$	1,169	$	853	$	95,732	$	92,885
Nonperforming		23		190		—		—		705		4,514
	$	18,657	$	16,709	$	1,169	$	853	$	96,437	$	97,399

The following schedule provides information on loans that were considered troubled debt restructurings (“TDRs”) as of December 31, 2011 that were modified during the year ended December 31, 2011:

(Dollars in thousands)	Number of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial and industrial		1	$	48	$	48
Commercial real estate		7		1,789		1,789
Residential real estate		5		639		639
		13	$	2,476	$	2,476

The pre-modification and post-modification outstanding recorded investment represents amounts as of the date of loan modification. If a difference exists between the pre-modification and post-modification outstanding recorded investment, it represents impairment recognized through the provision for loan losses computed based on a loan’s post-modification present value of expected future cash flows discounted at the loan’s original effective interest rate. If no difference exists, a loss is not expected to be incurred based on an assessment of the borrower’s expected cash flows.

The following schedule provides information on TDRs as of December 31, 2011 where the borrower was past due with respect to principal and/or interest for 30 days or more during the year ended December 31, 2011 that had been modified during the year prior to the default:

(Dollars in thousands)	Number of Loans		Recorded Investment
Commercial and industrial		1	$	48
Commercial real estate		3		1,135
Residential real estate		7		865
		11	$	2,048

33

ChoiceOne Financial Services, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loans are classified as performing when they are current as to principal and interest payments or are past due on payments less than 90 days. Loans are classified as nonperforming when they are past due 90 days or more as to principal and interest payments or are considered a troubled debt restructuring.

Impaired loans by loan category as of December 31 follow:

(Dollars in thousands)

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
2011
With no related allowance recorded
Agricultural	$	—	$	—	$	—	$	45	$	—
Commercial and industrial		102		105		—		167		—
Commercial real estate		1,122		1,538		—		2,369		15
Residential real estate		1,580		1,580		—		1,620		50
Subtotal		2,804		3,223		—		4,201		65
With an allowance recorded
Agricultural		—		—		—		—		—
Commercial and industrial		61		63		7		85		—
Commercial real estate		1,636		2,120		424		1,490		6
Residential real estate		—		—		—		—		—
Subtotal		1,697		2,183		431		1,575		6
Total
Agricultural		—		—		—		45		—
Commercial and industrial		163		168		7		252		—
Commercial real estate		2,758		3,658		424		3,859		21
Residential real estate		1,580		1,580		—		1,620		50
Total	$	4,501	$	5,406	$	431	$	5,776	$	71
2010
With no related allowance recorded
Agricultural	$	39	$	44	$	—	$	165	$	—
Commercial and industrial		222		229		—		211		(5	)
Commercial real estate		1,914		2,385		—		1,951		(2	)
Residential real estate		2,733		2,736		—		2,640		170
Subtotal		4,908		5,394		—		4,967		163
With an allowance recorded
Agricultural		—		—		—		65		—
Commercial and industrial		50		50		50		464		12
Commercial real estate		1,615		1,672		531		3,591		(3	)
Residential real estate		—		—		—		—		—
Subtotal		1,665		1,722		581		4,120		9
Total
Agricultural		39		44		—		230		—
Commercial and industrial		272		279		50		675		7
Commercial real estate		3,529		4,057		531		5,542		(5	)
Residential real estate		2,733		2,736		—		2,640		170
Total	$	6,573	$	7,116	$	581	$	9,087	$	172

34

ChoiceOne Financial Services, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

An aging analysis of loans by loan category as of December 31 follows:

(Dollars in thousands)

	30 to 59 Days (1)		60 to 89 Days (1)		Greater Than 90 Days (1)		Total (1)		Loans Not Past Due		Total Loans		90 Days Past Due and Accruing
2011
Agricultural	$	151	$	–	$	22	$	173	$	38,756	$	38,929	$	–
Commercial and industrial		541		143		97		781		57,904		58,685		–
Consumer		104		52		23		179		18,478		18,657		2
Commercial real estate		1,752		713		1,816		4,281		101,969		106,250		–
Construction real estate		–		–		–		–		1,169		1,169		–
Residential real estate		1,320		1,015		705		3,040		93,397		96,437		68
	$	3,868	$	1,923	$	2,663	$	8,454	$	311,673	$	320,127	$	70
2010
Agricultural	$	71	$	7	$	39	$	117	$	29,564	$	29,681	$	–
Commercial and industrial		133		175		142		450		55,497		55,947		–
Consumer		84		41		29		154		16,555		16,709		23
Commercial real estate		266		646		2,129		3,041		113,310		116,351		–
Construction real estate		–		–		–		–		853		853		–
Residential real estate		1,223		833		2,249		4,305		93,094		97,399		–
	$	1,777	$	1,702	$	4,588	$	8,067	$	308,873	$	316,940	$	23

(1) Includes nonaccrual loans.

Nonaccrual loans by loan category as of December 31 follow:

(Dollars in thousands)

	2011		2010
Agricultural	$	26	$	64
Commercial and industrial		143		256
Consumer		22		5
Commercial real estate		2,790		3,302
Construction real estate		–		–
Residential real estate		1,174		2,646
	$	4,155	$	6,273

Note 4 – Mortgage Banking

Activity during the year was as follows:

(Dollars in thousands)

	2011		2010		2009
Loans originated for resale, net of principal payments	$	25,685	$	28,816	$	27,598
Proceeds from loan sales		26,611		28,088		27,983
Net gains on sales of loans held for sale		672		682		601
Loan servicing fees, net of amortization		161		41		4

Loans serviced for others are not reported as assets in the accompanying consolidated balance sheets. The unpaid principal balances of these loans were $96 million and $107 million at December 31, 2011 and 2010, respectively. The Bank maintains custodial escrow balances in connection with these serviced loans; however, such escrows were immaterial at December 31, 2011 and 2010.

35

ChoiceOne Financial Services, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Activity for loan servicing rights was as follows:

(Dollars in thousands)

	2011			2010			2009
Balance, beginning of year	$	347		$	491		$	580
Capitalized		95			122			210
Amortization		(121	)		(266	)		(299	)
Balance, end of year	$	321		$	347		$	491

The fair value of loan servicing rights was $797,000 and $852,000 as of December 31, 2011 and 2010, respectively. Consequently, a valuation allowance was not necessary at year-end 2011 or 2010. The fair value of servicing rights at December 31, 2011 was determined using a discount rate of 7.7% and prepayment speeds ranging from 7% to 26%. The fair value of servicing rights at December 31, 2010 was determined using a discount rate of 7.7% and prepayment speeds ranging from 0% to 35%.

Note 5 – Premises and Equipment

As of December 31, premises and equipment consisted of the following:

(Dollars in thousands)

	2011			2010
Land and land improvements	$	4,084		$	4,025
Leasehold improvements		36			36
Buildings		11,080			10,950
Furniture and equipment		3,768			4,178
Total cost		18,968			19,189
Accumulated depreciation		(6,888	)		(6,664	)
Premises and equipment, net	$	12,080		$	12,525

Depreciation expense was $944,000, $903,000, and $974,000 for 2011, 2010 and 2009, respectively.

The Bank leases certain branch properties and automated-teller machine locations in its normal course of business. Rent expense totaled $75,000, $78,000, and $71,000 for 2011, 2010 and 2009, respectively. Rent commitments under non-cancelable operating leases were as follows, before considering renewal options that generally are present (dollars in thousands):

2012	$	58
2013		35
Total	$	93

Note 6 – Goodwill and Intangible Assets

Goodwill

There were no changes in the goodwill balance in 2011 or 2010. ChoiceOne engaged an outside consulting firm to assist management in performing its annual evaluation of goodwill for impairment as of June 30, 2011. The following steps were used in the valuation: determination of the reporting unit, determination of the appropriate standard of value, determination of the appropriate level of value, calculation of fair value, and comparison of the fair value computed to the equity carrying value. It was determined that the relevant reporting unit to be valued was ChoiceOne Bank. The standard of value used in the valuation was fair value as determined by generally accepted accounting principles. The appropriate level of value was determined to be the controlling interest level. The appraisal methodology used to calculate the fair value included the income approach, which was a discounted cash flow value based on projected earnings capacity. The income approach used a discount rate of 12.90%, a growth assumption of 0.2% for assets for the

36

ChoiceOne Financial Services, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

first year and 1.0% in subsequent years, and an assumption of cost savings of 20% of noninterest expense as a result of synergies and cost reductions from a change in control. The appraisal methodology also included the market approach, which was based on price-to-earnings multiples, price-to-tangible book value ratios, and core deposit premiums for selected bank sale transactions. The asset approach was also an approach that was reviewed, but it was not used in determining the fair value since it did not render a control level indication of value. The results from the valuation approaches were used to calculate an estimate of the fair value of ChoiceOne’s equity, which was compared to the carrying value of equity to determine whether the Step 1 test under generally accepted accounting principles that govern the valuation of goodwill was passed. The goodwill analysis determined that the fair value of ChoiceOne’s equity exceeded the carrying value by 7.8%. Based on this assessment, management believed that there was no indication of goodwill impairment at June 30, 2011. Based on the testing performed and a review of factors that might impact ChoiceOne’s stock value subsequent to the annual evaluation, no impairment of goodwill was deemed to exist as of December 31, 2011.

Acquired Intangible Assets

Information for acquired intangible assets at December 31 follows:

(Dollars in thousands)

	2011				2010
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Core deposit intangible	$	4,134	$	2,136	$	4,134	$	1,723
Other intangible assets		348		174		348		139
Totals	$	4,482	$	2,310	$	4,482	$	1,862

The core deposit intangible and other intangible assets are being amortized on a straight-line basis over ten years. Aggregate amortization expense was $448,000, $448,000 and $469,000 for 2011, 2010 and 2009, respectively. The estimated amortization expense for the next five years ending December 31 is as follows:

(Dollars in thousands)

	Core Deposit Intangible		Other Intangible Assets		Total
2012	$	414	$	35	$	449
2013		413		35		448
2014		413		35		448
2015		413		35		448
2016		345		34		379
Total	$	1,998	$	174	$	2,172

37

ChoiceOne Financial Services, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7 – Other Real Estate Owned

Other real estate owned represents residential and commercial properties primarily owned as a result of loan collection activities and is reported net of a valuation allowance. Activity within other real estate owned was as follows:

(Dollars in thousands)

	2011			2010			2009
Balance, beginning of year	$	1,953		$	2,201		$	3,692
Transfers from loans		2,972			1,358			3,489
Reclassification to buildings		—			—			(331	)
Proceeds from sales		(3,015	)		(1,174	)		(4,200	)
Gains/(losses) on sales		279			96			(7	)
Write-downs		(255	)		(528	)		(442	)
Balance, end of year	$	1,934		$	1,953		$	2,201

Activity in the valuation allowance on other real estate owned was as follows:

(Dollars in thousands)

	2011			2010			2009
Balance, beginning of year	$	909		$	438		$	206
Write-downs charged to expense		255			528			442
Deletions from sales of other real estate owned		(167	)		(57	)		(210	)
Balance, end of year	$	997		$	909		$	438

Note 8 – Deposits

Deposit balances as of December 31 consisted of the following:

(Dollars in thousands)

	2011		2010
Noninterest-bearing demand deposits	$	78,263	$	66,932
Interest-bearing demand deposits		64,498		59,853
Money market deposits		63,007		59,021
Savings deposits		46,737		43,572
Local certificates of deposit		144,983		152,602
Brokered certificates of deposit		5,877		7,904
Total deposits	$	403,365	$	389,884

Scheduled maturities of certificates of deposit at December 31 were as follows:

(Dollars in thousands)

2012	$	107,117
2013		26,084
2014		4,721
2015		5,180
2016		6,755
Thereafter		1,003
Total	$	150,860

38

ChoiceOne Financial Services, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Bank had certificates of deposit issued in denominations of $100,000 or greater totaling $70.9 million and $72.6 million at December 31, 2011 and 2010, respectively. The Bank had brokered certificates of deposit totaling $5.9 million at December 31, 2011 compared to $7.9 million at December 31, 2010. As of December 31, 2011, the weighted average interest rate on these brokered certificates of deposit was 1.19% with maturities ranging from June 2012 to May 2013. In addition, the Bank had $18.3 million of certificates of deposit as of December 31, 2011 and $18.5 million as of December 31, 2010 that had been issued through the Certificate of Deposit Account Registry Service (CDARS). Although certificates of deposit issued through CDARS are issued to local customers, this type of deposit is classified as brokered deposits for regulatory purposes.

Note 9 – Repurchase Agreements

Securities sold under agreements to repurchase are advances to the Bank by customers or another bank. These agreements are direct obligations of the Bank and are secured by securities held in safekeeping at a correspondent bank. Repurchase agreements with Bank customers mature daily. As of December 31, 2011 and December 31, 2010, the Bank had a $5 million structured repurchase agreement with a correspondent bank maturing on July 31, 2012 with a fixed interest rate of 4.55%. The repurchase agreement became putable by the correspondent quarterly starting July 1, 2009. Information regarding repurchase agreements follows:

(Dollars in thousands)

	2011			2010
Outstanding balance at December 31	$	21,869		$	22,249
Average interest rate at December 31		1.27	%		1.33	%
Average balance during the year	$	20,815		$	19,269
Average interest rate during the year		1.38	%		1.58	%
Maximum month end balance during the year	$	22,249		$	22,249

Note 10 – Federal Home Loan Bank Advances

At December 31, advances from the Federal Home Loan Bank (the “FHLB”) were as follows:

(Dollars in thousands)

	2011		2010
Maturities ranging from November 2012 to November 2024, fixed interest rates ranging from 2.54% to 4.16%, with an average rate of 3.58%	$	8,447
Maturities ranging from January 2011 to November 2024, fixed interest rates ranging from 2.54% to 4.16%, with an average rate of 3.58%			$	8,473
Total advances outstanding at year-end	$	8,447	$	8,473

Penalties are charged on fixed rate advances that are paid prior to maturity. No fixed rate advances were paid prior to maturity in 2011, 2010 or 2009. Advances maturing in 2012 and 2013 may be converted to a variable rate by the FHLB. If the FHLB exercises its option, the Bank may prepay the advance without penalty. Advances were secured by residential real estate loans with a carrying value of approximately $69 million at December 31, 2011 and $66 million at December 31, 2010. Based on this collateral, the Bank was eligible to borrow an additional $37 million at year-end 2011. The scheduled maturities of advances from the FHLB at December 31, 2011 were as follows (dollars in thousands):

2012	$	5,027
2013		3,028
2014		29
2015		30
2016		32
Thereafter		301
Total	$	8,447

39

ChoiceOne Financial Services, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11 – Income Taxes

Information as of December 31 and for the year follows:

(Dollars in thousands)

	2011		2010			2009
Provision for Income Taxes
Current federal income tax expense	$	682	$	817		$	215
Deferred federal income tax expense/(benefit)		378		(163	)		(410	)
Income tax expense/(benefit)	$	1,060	$	654		$	(195	)

	2011			2010			2009
Reconciliation of Income Tax Provision to Statutory Rate
Income tax computed at statutory federal rate of 34%	$	1,555		$	1,144		$	436
Tax exempt interest income		(437	)		(483	)		(608	)
Tax exempt earnings on bank-owned life insurance		(121	)		(122	)		(124	)
Nondeductible interest expense		16			25			44
Other items		47			90			57
Income tax expense/(benefit)	$	1,060		$	654		$	(195	)
Effective income tax rate		23	%		19	%		(15	)%

Components of Deferred Tax Assets and Liabilities	2011			2010
Deferred tax assets:
Allowance for loan losses	$	779		$	773
Deferred compensation		341			377
Write-downs on other real estate owned		339			309
Alternative minimum tax credit carryforward		75			154
Nonaccrual loan interest		57			124
Purchase accounting adjustments from merger		39			83
Other		231			259
Total deferred tax assets		1,861			2,079
Deferred tax liabilities:
Depreciation		1,382			1,142
Unrealized gains on securities available for sale		1,157			369
Purchase accounting adjustments from merger		743			883
Loan servicing rights		108			118
Post-retirement benefits obligation		87			95
Other		186			116
Total deferred tax liabilities		3,663			2,723
Net deferred tax liabilities	$	(1,802	)	$	(644	)

ChoiceOne had a deferred tax asset of $45,000 as of December 31, 2011 and $69,000 as of December 31, 2010 that resulted from capital losses incurred on the sales of equity securities in 2009 and 2010. A capital loss of $72,000 was carried back to 2007 during 2011 which utilized $24,000 of the deferred tax asset. A valuation allowance of $45,000 had been recorded as of December 31, 2011 and December 31, 2010 due to the uncertainty as to ChoiceOne’s ability to generate capital gains in the future that can offset the capital loss carryforward. ChoiceOne also had a deferred tax asset of $44,000 as of December 31, 2011 and $42,000 as of December 31, 2010 that was related to unexercised stock options. A valuation allowance for the entire balance had been recorded due to the fact that the exercise price of all of the options was higher than the market price of ChoiceOne’s stock as of the end of both 2011 and 2010. The valuation allowances totaling $89,000 as of December 31, 2011 and $87,000 as of December 31, 2010 have been netted against the total deferred tax assets listed above.

40

ChoiceOne Financial Services, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 12 – Related Party Transactions

Loans to executive officers, directors and their affiliates were as follows at December 31:

(Dollars in thousands)

	2011			2010
Balance, beginning of year	$	6,568		$	5,786
New loans		948			2,152
Repayments		(1,262	)		(1,370	)
Balance, end of year	$	6,254		$	6,568

Deposits from executive officers, directors and their affiliates were $14.8 million and $13.5 million at December 31, 2011 and 2010, respectively.

Note 13 – Employee Benefit Plans

401(k) Plan:

The 401(k) plan allows employees to contribute up to the IRS maximum. Matching company contributions to the plan are discretionary. Expense of this plan was $115,000, $112,000, and $0 in 2011, 2010, and 2009, respectively.

Employee Stock Ownership Plan:

Employees participate in an Employee Stock Ownership Plan (the “ESOP”). ChoiceOne may make discretionary contributions to the ESOP. Shares of ChoiceOne common stock are allocated to participants based on relative compensation earned and compensation expense is recorded when allocated. Dividends on allocated shares increase the participant accounts. Participants become fully vested upon completing six years of qualifying service. Participants receive the shares at the end of employment. A participant may require stock received to be repurchased by ChoiceOne at any time. ChoiceOne did not contribute to the ESOP nor was any expense recorded in 2011, 2010, or 2009.

Shares held by the ESOP as of December 31 were as follows:

(Dollars in thousands)

	2011		2010		2009
Shares allocated to participants		5,355		5,355		5,355
Shares unallocated		–		–		–
Total shares of ChoiceOne stock held by ESOP		5,355		5,355		5,355
Fair value of allocated shares, subject to repurchase obligation, recorded in other liabilities	$	66	$	64	$	48

Post-retirement Benefits Plan:

ChoiceOne maintains an unfunded post-retirement health care plan, which permits employees (and their dependents) the ability to participate upon retirement from ChoiceOne. ChoiceOne does not pay any portion of the health care premiums charged to its retired participants. A liability has been accrued for the obligation under this plan. ChoiceOne incurred negative post-retirement benefit expense of $11,000 in 2011, $15,000 in 2010, and $17,000 in 2009. The post-retirement obligation liability was $131,000 as of December 31, 2011 and $119,000 as of December 31, 2010.

Deferred Compensation Plans:

A deferred director compensation plan covers former directors of Valley Ridge Bank, which was acquired by ChoiceOne in 2006. Under the plan, ChoiceOne pays each former director the amount of director fees deferred plus interest at rates ranging from 0.90% to 5.84% over various periods as elected by each director. The payout periods range from one month to ten years beginning with the individual’s termination of service. A liability has been accrued for the obligation under this plan. ChoiceOne incurred deferred compensation plan expense of $17,000, $20,000, and $28,000 in 2011, 2010, and 2009, respectively. The deferred compensation liability was $287,000 as of December 31, 2011 and $357,000 as of December 31, 2010.

41

ChoiceOne Financial Services, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A supplemental retirement plan covers four former executive officers of Valley Ridge Bank. Under the plan, ChoiceOne pays these individuals a specific amount of compensation plus interest at 7.50% over a 15-year period commencing upon early retirement age (as defined in the plan) or normal retirement age (as defined in the plan). A liability has been accrued for the obligation under this plan. ChoiceOne incurred deferred compensation plan expense of $32,000 in 2011, $41,000 in 2010, and $76,000 in 2009. Deferred compensation liabilities of $715,000 and $751,000 were outstanding as of December 31, 2011 and December 31, 2010, respectively.

Note 14 – Stock Options

Options to buy stock are granted to key employees under an incentive stock option plan to provide them with an additional equity interest in ChoiceOne. The plan provides for the issuance of up to 147,767 shares of common stock. ChoiceOne recognized compensation expense of $5,000 in 2011, $15,000 in 2010, and $22,000 in 2009 in connection with stock options that vested for current participants during these years. The maximum option term is 10 years and options vest over 3 years. At December 31, 2011, there were 98,835 options available for future grants.

A summary of the activity in the plan follows:

	2011				2010				2009
	Shares		Weighted average exercise price		Shares		Weighted average exercise price		Shares		Weighted average exercise price
Options outstanding, beginning of year		49,232	$	16.46		49,232	$	16.46		49,232	$	16.46
Options granted		–		–		–		–		–		–
Options exercised		2,576	$	13.44		–		–		–		–
Options forfeited or expired		–		–		–		–		–		–
Options outstanding, end of year		46,656	$	16.62		49,232	$	16.46		49,232	$	16.46
Options exercisable at December 31		46,656	$	16.62		46,357	$	16.64		41,107	$	16.78

The range of prices for options outstanding and exercisable at the end of 2011 ranged from $13.04 to $21.43 per share. The weighted average remaining contractual life of options outstanding and exercisable at the end of 2011 was approximately 3.7 years. The exercise price of all options outstanding was higher than ChoiceOne’s closing stock price as of the end of 2011. As a result, the aggregate intrinsic value of both options outstanding and options exercisable was $0 as of December 31, 2011. The number of options, weighted average exercise prices, and fair value of options granted has been adjusted for all stock dividends and splits. Information pertaining to options outstanding at December 31, 2011 is as follows:

Exercise price of stock options:	Number of options outstanding at year-end		Number of options exercisable at year-end		Average remaining contractual life (in years)
$13.04		3,306		3,306		0.14
$13.50		10,000		10,000		6.07
$13.70		4,725		4,725		1.04
$16.31		6,299		6,299		2.06
$17.95		9,500		9,500		5.05
$18.85		6,000		6,000		4.05
$21.43		6,826		6,826		3.05

The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model. ChoiceOne uses historical data to estimate the volatility of the market price of ChoiceOne stock and employee terminations within the valuation model. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. No options were granted in 2011, 2010, or 2009.

During 2011, 2,875 shares were vested at an average exercise price of $13.50. As of December 31, 2011, there was no unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plan.

42

ChoiceOne Financial Services, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15 – Earnings Per Share

(Dollars in thousands, except per share data)

	2011		2010		2009
Basic
Net income	$	3,513	$	2,711	$	1,478
Weighted average common shares outstanding		3,286,969		3,273,151		3,255,984
Basic earnings per common share	$	1.07	$	0.83	$	0.45
Diluted
Net income	$	3,513	$	2,711	$	1,478
Weighted average common shares outstanding		3,286,969		3,273,151		3,255,984
Plus: dilutive effect of assumed exercises of stock options		–		–		–
Average shares and dilutive potential common shares		3,286,969		3,273,151		3,255,984
Diluted earnings per common share	$	1.07	$	0.83	$	0.45

There were 46,656 stock options as of December 31, 2011 and 49,232 as of December 31, 2010 and December 31, 2009 considered to be anti-dilutive to earnings per share and thus have been excluded from the calculations above.

Note 16 – Other Comprehensive Income (Loss)

Other comprehensive income (loss) components and related taxes follow:

(Dollars in thousands)

	2011			2010			2009
Unrealized holding gains on available for sale securities	$	2,448		$	635		$	1,364
Less reclassification adjustments for gains included in net income		129			443			355
Net unrealized gains		2,319			192			1,009
Less tax effect		789			65			344
Net-of-tax amount		1,530			127			665
Change in funded status of post-retirement benefit plan		(23	)		(21	)		9
Tax effect		(8	)		(7	)		3
Net-of-tax amount		(15	)		(14	)		6
Total	$	1,515		$	113		$	671

43

ChoiceOne Financial Services, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accumulated other comprehensive income, a component of equity, was comprised of the following at December 31:

(Dollars in thousands)

	2011			2010
Unrealized holding gains on available for sale securities	$	3,402		$	1,083
Unrecognized actuarial gains on post-retirement benefit plan		258			281
Tax effect		(1,245	)		(464	)
Net accumulated other comprehensive income	$	2,415		$	900

Note 17 – Condensed Financial Statements of Parent Company

Condensed Balance Sheets

(Dollars in thousands)

	December 31
	2011		2010
Assets
Cash	$	487	$	201
Securities available for sale		218		207
Other assets		26		76
Investment in ChoiceOne Bank		57,264		53,899
Total assets	$	57,995	$	54,383
Liabilities
Mandatory redeemable shares under ESOP, at fair value	$	65	$	64
Other liabilities		26		6
Total liabilities		91		70
Shareholders’ equity		57,904		54,313
Total liabilities and shareholders’ equity	$	57,995	$	54,383

Condensed Statements of Income

(Dollars in thousands)

	Years Ended December 31
	2011		2010		2009
Interest and dividends from ChoiceOne Bank	$	1,695	$	1,641	$	938
Interest and dividends from other securities		7		7		17
Gains on sales of securities		—		—		17
Other income		33		—		—
Total income		1,735		1,648		972
Other expenses		81		67		67
Income before income tax and equity in undistributed net income of subsidiary		1,654		1,581		905
Income tax benefit		16		23		17
Income before equity in undistributed net income of subsidiary		1,670		1,604		922
Equity in undistributed net income of subsidiary		1,843		1,107		556
Net income	$	3,513	$	2,711	$	1,478

44

ChoiceOne Financial Services, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Condensed Statements of Cash Flows

(Dollars in thousands)

	Years Ended December 31
	2011			2010			2009
Cash flows from operating activities:
Net income	$	3,513		$	2,711		$	1,478
Adjustments to reconcile net income to net cash from operating activities:
Equity in undistributed net income of subsidiary		(1,843	)		(1,107	)		(556	)
Amortization		—			—			2
Gains on sales of securities		—			—			(17	)
Changes in other assets		50			(17	)		3
Changes in other liabilities		17			(18	)		30
Net cash from operating activities		1,737			1,569			940
Cash flows from investing activities:
Sales of securities		—			—			524
Maturities of securities		—			200			—
Purchases of securities		—			(202	)		—
Net cash from investing activities		—			(2	)		524
Cash flows from financing activities:
Issuance of common stock		127			125			126
Cash dividends paid		(1,578	)		(1,572	)		(1,563	)
Net cash from financing activities		(1,451	)		(1,447	)		(1,437	)
Net change in cash and cash equivalents		286			120			27
Beginning cash and cash equivalents		201			81			54
Ending cash and cash equivalents	$	487		$	201		$	81

Note 18 – Financial Instruments

Financial instruments as of December 31 were as follows:

(Dollars in thousands)

	2011				2010
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets:
Cash and due from banks	$	17,125	$	17,125	$	19,074	$	19,074
Federal funds sold		—		—		5,000		5,000
Securities available for sale		114,276		114,276		90,820		90,820
Federal Home Loan Bank and Federal Reserve Bank stock		3,749		3,749		4,159		4,159
Loans held for sale		1,262		1,262		1,610		1,610
Loans, net		314,914		319,017		312,211		314,781
Accrued interest receivable		2,106		2,106		2,000		2,000
Liabilities:
Demand, savings and money market deposits		252,505		252,505		229,378		229,378
Time deposits		150,860		151,881		160,506		159,616
Repurchase agreements		21,869		21,083		22,249		22,251
Advances from Federal Home Loan Bank		8,447		8,664		8,473		8,947
Accrued interest payable		176		176		231		231

45

ChoiceOne Financial Services, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The estimated fair values approximate the carrying amounts for all assets and liabilities except those described later in this paragraph. The methodology for determining the estimated fair value for securities available for sale is described in Note 19. The estimated fair value for loans is based on the rates charged at December 31 for new loans with similar maturities, applied until the loan is assumed to reprice or be paid. The allowance for loan losses is considered to be a reasonable estimate of discount for credit quality concerns. The estimated fair values for time deposits and FHLB advances are based on the rates paid at December 31 for new deposits or FHLB advances, applied until maturity. The estimated fair values for other financial instruments and off-balance sheet loan commitments are considered nominal.

Note 19 – Fair Value Measurements

The following tables present information about the Bank’s assets and liabilities measured at fair value on a recurring basis at December 31, 2011 and December 31, 2010, and the valuation techniques used by the Bank to determine those fair values.

In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that the Bank has the ability to access.

Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability.

In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Bank’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability.

There were no liabilities measured at fair value as of December 31, 2011 or December 31, 2010. Disclosures concerning assets measured at fair value are as follows:

Assets Measured at Fair Value on a Recurring Basis

(Dollars in Thousands)

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at Date Indicated
Investment Securities, Available for Sale – December 31, 2011
U.S. Government and federal agency	$	—	$	40,413	$	—	$	40,413
State and municipal		—		52,228		2,271		54,499
Mortgage-backed		—		9,780		—		9,780
Corporate		—		6,011		—		6,011
FDIC-guaranteed financial institution debt		—		2,038		—		2,038
Equity securities		—		1,035		500		1,535
Total	$	—	$	111,505	$	2,771	$	114,276
Investment Securities, Available for Sale – December 31, 2010
U.S. Government and federal agency	$	—	$	29,066	$	—	$	29,066
State and municipal		—		45,281		2,339		47,620
Mortgage-backed		—		7,599		—		7,599
Corporate		—		2,883		—		2,883
FDIC-guaranteed financial institution debt		—		2,053		—		2,053
Equity securities		—		1,099		500		1,599
Total	$	—	$	87,981	$	2,839	$	90,820

46

ChoiceOne Financial Services, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Securities classified as available for sale are generally reported at fair value utilizing Level 2 inputs. ChoiceOne’s external investment advisor obtained fair value measurements from an independent pricing service that uses matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). The fair value measurements considered observable data that may include dealer quotes, market spreads, cash flows and the bonds’ terms and conditions, among other things. Securities classified in Level 2 included U.S. Government and federal agency securities, state and municipal securities, mortgage-backed securities, corporate bonds, FDIC- guaranteed financial institution debt, and equity securities. The Company classified certain state and municipal securities and privately issued trust preferred securities as Level 3. Based on the lack of observable market data, estimated fair values were based on the observable data available and reasonable unobservable market data.

ChoiceOne reviewed the methodologies used to estimate the fair values of all securities in 2010. Based on an updated analysis, it was determined that the fair values of U.S. Government and federal agency securities, corporate securities, and FDIC-guaranteed financial institution debt were based upon Level 2 inputs. These securities classes, which were previously disclosed as based on Level 1 inputs, have been adjusted accordingly.

Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis

(Dollars in Thousands)

	2011			2010
Investment Securities, Available for Sale
Balance, January 1	$	2,839		$	2,807
Total realized and unrealized gains included in income		—			—
Total unrealized gains included in other comprehensive income		164			10
Net purchases, sales, calls, and maturities		(299	)		(284	)
Net transfers into Level 3		67			306
Balance, December 31	$	2,771		$	2,839

Of the Level 3 assets that were still held by the Bank at December 31, 2011, the net unrealized gain for the twelve months ended December 31, 2011 was $164,000, which is recognized in other comprehensive income in the consolidated balance sheet. There were no sales or purchases of Level 3 securities in 2011. One security was reclassified from a Level 2 measurement of fair value to a Level 3 measurement in both 2010 and 2011 as a result of a change in the marketability of the security.

Both observable and unobservable inputs may be used to determine the fair value of positions classified as Level 3 assets and liabilities. As a result, the unrealized gains and losses for these assets and liabilities presented in the tables above may include changes in fair value that were attributable to both observable and unobservable inputs.

Available for sale investment securities categorized as Level 3 assets consist of bonds issued by local municipalities and a trust-preferred security. The Bank estimates the fair value of these assets based on the present value of expected future cash flows using management’s best estimate of key assumptions, including forecasted interest yield and payment rates, credit quality and a discount rate commensurate with the current market and other risks involved.

47

ChoiceOne Financial Services, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Bank also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets are not normally measured at fair value, but can be subject to fair value adjustments in certain circumstances, such as impairment. Disclosures concerning assets measured at fair value on a non-recurring basis are as follows:

Assets Measured at Fair Value on a Non-recurring Basis

(Dollars in Thousands)

	Balance at Dates Indicated		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Losses for the Period Ended
Impaired Loans
December 31, 2011	$	4,501	$	–	$	–	$	4,501	$	501
December 31, 2010	$	6,573	$	–	$	–	$	6,573	$	164
Other Real Estate
December 31, 2011	$	1,934	$	–	$	–	$	1,934	$	255
December 31, 2010	$	1,953	$	–	$	–	$	1,953	$	528

Impaired loans categorized as Level 3 assets consist of non-homogeneous loans that are considered impaired. The Bank estimates the fair value of the loans based on the present value of expected future cash flows using management’s best estimate of key assumptions. These assumptions include future payment ability, timing of payment streams, and estimated realizable values of available collateral (typically based on outside appraisals). The changes in fair value consisted of charge-downs of impaired loans that were posted to the allowance for loan losses and write-downs of other real estate owned that were posted to a valuation account. The fair value of other real estate owned was based on appraisals or other reviews of property values, adjusted for estimated costs to sell.

Note 20 – Off-Balance Sheet Activities

Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customers’ financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.

The contractual amount of financial instruments with off-balance sheet risk was as follows at December 31:

(Dollars in thousands)

	2011				2010
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Unused lines of credit and letters of credit	$	2,868	$	47,217	$	5,370	$	42,985
Commitments to fund loans (at market rates)		3,610		1,919		5,088		3,000

Commitments to fund loans are generally made for periods of 180 days or less. The fixed rate loan commitments have interest rates ranging from 3.63% to 7.25% and maturities ranging from 1 year to 30 years.

Note 21 – Regulatory Capital

ChoiceOne Bank is subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. The prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If only adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as are asset growth and expansion, and plans for capital restoration are required. At year-end 2011 and 2010, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank’s categories.

48

ChoiceOne Financial Services, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Actual capital levels and minimum required levels for ChoiceOne Bank were as follows:

(Dollars in thousands)

	Actual					Minimum Required for Capital Adequacy Purposes					Minimum Required to be Well Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2011
Total capital (to risk weighted assets)	$	43,042		12.5	%	$	27,510		8.0	%	$	34,387		10.0	%
Tier 1 capital (to risk weighted assets)		38,960		11.3			13,755		4.0			20,632		6.0
Tier 1 capital (to average assets)		38,960		8.3			18,801		4.0			23,502		5.0
December 31, 2010
Total capital (to risk weighted assets)	$	40,588		12.1	%	$	26,787		8.0	%	$	33,483		10.0	%
Tier 1 capital (to risk weighted assets)		36,654		10.9			13,393		4.0			20,090		6.0
Tier 1 capital (to average assets)		36,654		7.9			18,502		4.0			23,128		5.0

Banking regulations limit capital distributions by state-chartered banks. Generally, capital distributions are limited to undistributed net income for the current and prior two years. At December 31, 2011, approximately $3,506,000 was available for ChoiceOne Bank to pay dividends to ChoiceOne Financial Services, Inc. ChoiceOne’s ability to pay dividends to shareholders is dependent on the Bank, which is restricted by state law and regulations.

Note 22 – Quarterly Financial Data (Unaudited)

(Dollars in thousands)

							Earnings Per Share
	Interest Income		Net Interest Income		Net Income		Basic		Fully Diluted
2011
First Quarter	$	5,282	$	4,345	$	704	$	0.21	$	0.21
Second Quarter		5,386		4,472		904		0.28		0.28
Third Quarter		5,399		4,523		886		0.27		0.27
Fourth Quarter		5,408		4,582		1,019		0.31		0.31
2010
First Quarter	$	5,438	$	4,060	$	644	$	0.20	$	0.20
Second Quarter		5,494		4,210		669		0.20		0.20
Third Quarter		5,507		4,289		739		0.23		0.23
Fourth Quarter		5,522		4,436		659		0.20		0.20

There were no significant fluctuations in the quarterly financial data in 2010 or 2011. The growth in net income that occurred in 2011 was due to increased net interest income and noninterest income.

49

ChoiceOne Financial Services, Inc.

CORPORATE AND SHAREHOLDER INFORMATION

Corporate Headquarters ChoiceOne Financial Services, Inc. 109 East Division Street Sparta, Michigan 49345 Phone: (616) 887-7366 Fax: (616) 887-7990 Website: www.choiceone.com   Market Makers in ChoiceOne Financial Services, Inc. Stock Boenning & Scattergood, Inc. Powell, Ohio (866) 326-8113   Kent King Securities, Division of Royal Securities, Inc. Grand Rapids, Michigan (616) 459-3317 (800) 321-9171   Stifel Nicolaus & Company, Inc. Grand Rapids, Michigan (616) 942-1717 (800) 676-0477   Stock Registrar and Transfer Agent Registrar and Transfer Company 10 Commerce Drive Cranford, New Jersey 07016 (800) 368-5948   Annual Shareholder Meeting The 2012 Annual Shareholder Meeting of ChoiceOne Financial Services, Inc., will be held at 11:00 a.m. local time on Thursday, April 25, 2012, at Moss Ridge Golf Club in Ravenna, Michigan. ChoiceOne Bank Alpine Office 5050 Alpine Avenue NW Comstock Park, Michigan 49321   Cedar Springs Office 4170 – 17 Mile Road Cedar Springs, Michigan 49319   Coopersville Office 661 West Randall Street Coopersville, Michigan 49404   Egelston Office 5475 East Apple Avenue Muskegon, Michigan 49442   Fremont Office 1423 West Main Street Fremont, Michigan 49412   Grant Office 10 West Main Street Grant, Michigan 49327   Kent City Office 450 West Muskegon Street Kent City, Michigan 49330   Newaygo Office 246 West River Drive Newaygo, Michigan 49337   Ravenna Office 3069 Slocum Road Ravenna, Michigan 49451   Rockford Office 6795 Courtland Drive Rockford, Michigan 49341   Sparta - Main Office 109 East Division Street Sparta, Michigan 49345   Sparta - Appletree Office 416 West Division Street Sparta, Michigan 49345   White Cloud Office 47 South Charles Street White Cloud, Michigan 49349 ChoiceOne Insurance Agencies, Inc. Sparta Office 109 East Division Street Sparta, Michigan 49345

50

ChoiceOne Financial Services, Inc.

DIRECTORS AND OFFICERS

Directors ChoiceOne Financial Services, Inc.   Jerome B. Arends Former President and Chief Executive Officer of Ravenna Farm Equipment (Agricultural Equipment Supplier)   Frank G. Berris President and Chief Executive Officer, American Gas & Oil Co., Inc. (Distributor of Petroleum Products)   James A. Bosserd President and Chief Executive Officer, ChoiceOne Financial Services, Inc. and ChoiceOne Bank   K. Timothy Bull President, Moon Lake Orchards, Inc. (Fruit Producer)   William F. Cutler, Jr. Former Vice President, H. H. Cutler Co. (Apparel Manufacturer)   Lewis G. Emmons President, Emmons Development (Real Estate Development)   Stuart Goodfellow Chairman of The Board, ChoiceOne Financial Services, Inc. and ChoiceOne Bank Former Owner, Goodfellow Blueberry Farms Former Owner, Goodfellow Vending Services (Vending Company)   Gary Gust Former President, Gust Construction Company (General Contractor)   Paul L. Johnson Former President, Falcon Resources, Inc. (Automotive and Furniture Design)   Dennis C. Nelson, DDS General Dentistry Directors ChoiceOne Financial Services, Inc. (continued)   Nels W. Nyblad President, Nyblad Orchards (Fruit Producer)   Roxanne M. Page CPA and Partner, Beene Garter LLP (Certified Public Accountants)   Donald VanSingel Vice Chairman of The Board, ChoiceOne Financial Services, Inc. and ChoiceOne Bank Former Consultant, Governmental Consultant Services, Inc. Former Legislator, Michigan House of Representatives   Director Emeritus Richard L. Edgar Former Director and Chairman of The Board, ChoiceOne Financial Services, Inc., and ChoiceOne Bank Former President and Chief Executive Officer, Valley Ridge Financial Corp. and Valley Ridge Bank Officers ChoiceOne Financial Services, Inc.   James A. Bosserd President and Chief Executive Officer   Louis D. Knooihuizen Senior Vice President   Michael E. McHugh Senior Vice President   Mary J. Johnson Secretary   Thomas L. Lampen Treasurer

51

Officers ChoiceOne Bank   James A. Bosserd President Chief Executive Officer   Sheila R. Clark Senior Vice President Human Resources Director   Mary J. Johnson Senior Vice President Operations/Cashier   Louis D. Knooihuizen Senior Vice President Chief Lending Officer   Thomas L. Lampen, CPA Senior Vice President Chief Financial Officer   Michael E. McHugh Senior Vice President Accounting, Sales & Marketing   Kelly J. Potes Senior Vice President Retail Services & GM Investments/Ins.   Linda K. Anderson Vice President Call Center & Regional/Branch Sales Manager, Rockford   Brian R. Bacon Vice President Commercial Loan Officer   Lee A. Braford Vice President Commercial Loans Officer/Credit Risk Manager   Gregory M. Goss Vice President Security/BSA Officer   Amy S. Homich Vice President Marketing & Business Development   Daniel C. Wheat Vice President Regional/Branch Sales Manager, Grant   Marilyn B. Childress Assistant Vice President Loan Originator Officers ChoiceOne Bank (continued)   Rita A. Flintoff Assistant Vice President Branch Sales Manager – Newaygo & White Cloud   Kent G. Gagnon Assistant Vice President Business Development   Denise L. Gates Assistant Vice President Regional/Branch Sales Manager, Cedar Springs   Stephen P. Grey Assistant Vice President Credit Department Manager & Loan Officer   Jason J. Herbig Assistant Vice President Network Administrator   Rebecca J. Johnson Assistant Vice President Retail Banking   Kevin T. Kelling Assistant Vice President Mortgage Loans Sales & Operations Officer   Bonnie K. Koehn Assistant Vice President Branch Sales Manager – Sparta Main & Appletree   Linda S. Nichols Assistant Vice President Branch Sales Manager, Ravenna   Lori J. O’Brien Assistant Vice President Loan Operations   Peggy A. O’Dea Assistant Vice President Regional/Branch Sales Manager, Coopersville   Ryan F. Peacock Assistant Vice President Commercial Loan Officer   Maria J. Roossinck Assistant Vice President Risk Management   Nicole N. Sakowski Assistant Vice President Collections Manager Officers ChoiceOne Bank (continued)   Paul E. Tucker Assistant Vice President Network Administrator   Cynthia J. Watson Assistant Vice President Operations   Marva J. Zeldenrust Assistant Vice President Branch Sales Manager, Fremont   Sally K. Anderson Credit Analyst Officer   Jennifer M. Bellamy Branch Sales Manager, Kent City   Candace J. Bouwkamp Administrative Services Manager   Patricia J. Brown Branch Sales Manager, Egelston   Erin M. Burdick-Bloom Branch Sales Manager, Alpine   Lee J. Decker Consumer Loan Manager/ IT Specialist   Gary B. Hall Mortgage Sales Manager   John K. Harpst Mortgage Operations Manager   Veronica M. Meyer Assistant Call Center Manager   Officers ChoiceOne Insurance Agencies, Inc.   James A. Bosserd President   Kelly J. Potes, CFP Senior Vice President   Randy A. Schmidt, CFP Vice President Investment Advisor/Agent   Thomas L. Lampen, CPA Treasurer

52

EX-21

EXHIBIT 21

SUBSIDIARIES OF THE REGISTRANT

The following lists the subsidiaries of the Registrant and the state or jurisdiction of incorporation.

	Name and Address of Subsidiary	Incorporated
1.	ChoiceOne Bank 109 East Division Sparta, Michigan 49345	Michigan
2.	ChoiceOne Insurance Agencies, Inc. (1) 109 East Division Sparta, Michigan 49345	Michigan
3.	West Shore Computer Services, Inc. (2) 111 North Main Street Scottville, Michigan 49454	Michigan
4.	Valley Ridge Financial Services, Inc. (1) 450 West Muskegon Kent City, Michigan 49330	Michigan
5.	Valley Ridge Realty, Inc. (1) 450 West Muskegon Kent City, Michigan 49330	Michigan
6.	1423 West Main LLC (1) 450 West Muskegon Kent City, Michigan 49330	Michigan

(1) These are wholly-owned subsidiaries of ChoiceOne Bank.

(2) ChoiceOne Bank owns a 25% interest in West Shore Computer Services, Inc.

EX-23

Exhibit 23

CONSENT OF REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the following Registration Statements of ChoiceOne Financial Services, Inc. on Form S-4 (333-136523); and S-3 (333-44336); and S-8 (Registration No. 333-91364); and Form S-8 (Registration No. 333- 91366) of our report dated March 28, 2012 on the consolidated financial statements of ChoiceOne Financial Services, Inc. for the years ended December 31, 2011, 2010 and 2009, which report is included in Item 8 of the Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Plante & Moran, PLLC

Auburn Hills, Michigan

March 28, 2012

EX-24

Exhibit 24

LIMITED POWER OF ATTORNEY

The undersigned, in his or her capacity as a director or officer, or both, of ChoiceOne Financial Services, Inc., does hereby appoint James A. Bosserd, Mary J. Johnson, Michael E. McHugh and Thomas Lampen, or any of them, his or her attorneys or attorney, with full power of substitution, to execute in his or her name an Annual Report of ChoiceOne Financial Services, Inc. on Form 10-K for its fiscal year ended December 31, 2011, and any amendments to that report, and to file it with the Securities and Exchange Commission. Each attorney shall have power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act to be done in the premises as fully and to all intents and purposes as the undersigned could do in person, and the undersigned hereby ratifies and approves the acts of such attorneys.

Dated:January 24, 2012	/s/ Jerome B. Arends
	(signature)
	Jerome B. Arends
	(type or print name)

LIMITED POWER OF ATTORNEY

The undersigned, in his or her capacity as a director or officer, or both, of ChoiceOne Financial Services, Inc., does hereby appoint James A. Bosserd, Mary J. Johnson, Michael E. McHugh and Thomas Lampen, or any of them, his or her attorneys or attorney, with full power of substitution, to execute in his or her name an Annual Report of ChoiceOne Financial Services, Inc. on Form 10-K for its fiscal year ended December 31, 2011, and any amendments to that report, and to file it with the Securities and Exchange Commission. Each attorney shall have power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act to be done in the premises as fully and to all intents and purposes as the undersigned could do in person, and the undersigned hereby ratifies and approves the acts of such attorneys.

Dated: January 31, 2012	/s/ Frank G. Berris
	(signature)
	Frank G. Berris
	(type or print name)

LIMITED POWER OF ATTORNEY

The undersigned, in his or her capacity as a director or officer, or both, of ChoiceOne Financial Services, Inc., does hereby appoint James A. Bosserd, Mary J. Johnson, Michael E. McHugh and Thomas Lampen, or any of them, his or her attorneys or attorney, with full power of substitution, to execute in his or her name an Annual Report of ChoiceOne Financial Services, Inc. on Form 10-K for its fiscal year ended December 31, 2011, and any amendments to that report, and to file it with the Securities and Exchange Commission. Each attorney shall have power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act to be done in the premises as fully and to all intents and purposes as the undersigned could do in person, and the undersigned hereby ratifies and approves the acts of such attorneys.

Dated: January 25, 2012	/s/ K. Timothy Bull
	(signature)
	K. Timothy Bull
	(type or print name)

LIMITED POWER OF ATTORNEY

The undersigned, in his or her capacity as a director or officer, or both, of ChoiceOne Financial Services, Inc., does hereby appoint James A. Bosserd, Mary J. Johnson, Michael E. McHugh and Thomas Lampen, or any of them, his or her attorneys or attorney, with full power of substitution, to execute in his or her name an Annual Report of ChoiceOne Financial Services, Inc. on Form 10-K for its fiscal year ended December 31, 2011, and any amendments to that report, and to file it with the Securities and Exchange Commission. Each attorney shall have power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act to be done in the premises as fully and to all intents and purposes as the undersigned could do in person, and the undersigned hereby ratifies and approves the acts of such attorneys.

Dated: January 24, 2012	/s/ William F. Cutler, Jr.
	(signature)
	William F. Cutler, Jr.
	(type or print name)

LIMITED POWER OF ATTORNEY

The undersigned, in his or her capacity as a director or officer, or both, of ChoiceOne Financial Services, Inc., does hereby appoint James A. Bosserd, Mary J. Johnson, Michael E. McHugh and Thomas Lampen, or any of them, his or her attorneys or attorney, with full power of substitution, to execute in his or her name an Annual Report of ChoiceOne Financial Services, Inc. on Form 10-K for its fiscal year ended December 31, 2011, and any amendments to that report, and to file it with the Securities and Exchange Commission. Each attorney shall have power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act to be done in the premises as fully and to all intents and purposes as the undersigned could do in person, and the undersigned hereby ratifies and approves the acts of such attorneys.

Dated: January 23, 2012	/s/ Lewis G. Emmons
	(signature)
	Lewis G. Emmons
	(type or print name)

LIMITED POWER OF ATTORNEY

The undersigned, in his or her capacity as a director or officer, or both, of ChoiceOne Financial Services, Inc., does hereby appoint James A. Bosserd, Mary J. Johnson, Michael E. McHugh and Thomas Lampen, or any of them, his or her attorneys or attorney, with full power of substitution, to execute in his or her name an Annual Report of ChoiceOne Financial Services, Inc. on Form 10-K for its fiscal year ended December 31, 2011, and any amendments to that report, and to file it with the Securities and Exchange Commission. Each attorney shall have power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act to be done in the premises as fully and to all intents and purposes as the undersigned could do in person, and the undersigned hereby ratifies and approves the acts of such attorneys.

Dated: January 23, 2012	/s/ Stuart Goodfellow
	(signature)
	Stuart Goodfellow
	(type or print name)

LIMITED POWER OF ATTORNEY

The undersigned, in his or her capacity as a director or officer, or both, of ChoiceOne Financial Services, Inc., does hereby appoint James A. Bosserd, Mary J. Johnson, Michael E. McHugh and Thomas Lampen, or any of them, his or her attorneys or attorney, with full power of substitution, to execute in his or her name an Annual Report of ChoiceOne Financial Services, Inc. on Form 10-K for its fiscal year ended December 31, 2011, and any amendments to that report, and to file it with the Securities and Exchange Commission. Each attorney shall have power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act to be done in the premises as fully and to all intents and purposes as the undersigned could do in person, and the undersigned hereby ratifies and approves the acts of such attorneys.

Dated: January 24, 2012	/s/ Gary Gust
	(signature)
	Gary Gust
	(type or print name)

LIMITED POWER OF ATTORNEY

The undersigned, in his or her capacity as a director or officer, or both, of ChoiceOne Financial Services, Inc., does hereby appoint James A. Bosserd, Mary J. Johnson, Michael E. McHugh and Thomas Lampen, or any of them, his or her attorneys or attorney, with full power of substitution, to execute in his or her name an Annual Report of ChoiceOne Financial Services, Inc. on Form 10-K for its fiscal year ended December 31, 2011, and any amendments to that report, and to file it with the Securities and Exchange Commission. Each attorney shall have power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act to be done in the premises as fully and to all intents and purposes as the undersigned could do in person, and the undersigned hereby ratifies and approves the acts of such attorneys.

Dated: January 24, 2012	/s/ Paul L. Johnson
	(signature)
	Paul L. Johnson
	(type or print name)

LIMITED POWER OF ATTORNEY

The undersigned, in his or her capacity as a director or officer, or both, of ChoiceOne Financial Services, Inc., does hereby appoint James A. Bosserd, Mary J. Johnson, Michael E. McHugh and Thomas Lampen, or any of them, his or her attorneys or attorney, with full power of substitution, to execute in his or her name an Annual Report of ChoiceOne Financial Services, Inc. on Form 10-K for its fiscal year ended December 31, 2011, and any amendments to that report, and to file it with the Securities and Exchange Commission. Each attorney shall have power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act to be done in the premises as fully and to all intents and purposes as the undersigned could do in person, and the undersigned hereby ratifies and approves the acts of such attorneys.

Dated: January 21, 2012	/s/ Dennis C. Nelson
	(signature)
	Dennis C. Nelson
	(type or print name)

LIMITED POWER OF ATTORNEY

The undersigned, in his or her capacity as a director or officer, or both, of ChoiceOne Financial Services, Inc., does hereby appoint James A. Bosserd, Mary J. Johnson, Michael E. McHugh and Thomas Lampen, or any of them, his or her attorneys or attorney, with full power of substitution, to execute in his or her name an Annual Report of ChoiceOne Financial Services, Inc. on Form 10-K for its fiscal year ended December 31, 2011, and any amendments to that report, and to file it with the Securities and Exchange Commission. Each attorney shall have power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act to be done in the premises as fully and to all intents and purposes as the undersigned could do in person, and the undersigned hereby ratifies and approves the acts of such attorneys.

Dated: January 24, 2012	/s/ Nels W. Nyblad
	(signature)
	Nels W. Nyblad
	(type or print name)

LIMITED POWER OF ATTORNEY

The undersigned, in his or her capacity as a director or officer, or both, of ChoiceOne Financial Services, Inc., does hereby appoint James A. Bosserd, Mary J. Johnson, Michael E. McHugh and Thomas Lampen, or any of them, his or her attorneys or attorney, with full power of substitution, to execute in his or her name an Annual Report of ChoiceOne Financial Services, Inc. on Form 10-K for its fiscal year ended December 31, 2011, and any amendments to that report, and to file it with the Securities and Exchange Commission. Each attorney shall have power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act to be done in the premises as fully and to all intents and purposes as the undersigned could do in person, and the undersigned hereby ratifies and approves the acts of such attorneys.

Dated: January 24, 2012	/s/ Roxanne M. Page
	(signature)
	Roxanne M. Page
	(type or print name)

LIMITED POWER OF ATTORNEY

The undersigned, in his or her capacity as a director or officer, or both, of ChoiceOne Financial Services, Inc., does hereby appoint James A. Bosserd, Mary J. Johnson, Michael E. McHugh and Thomas Lampen, or any of them, his or her attorneys or attorney, with full power of substitution, to execute in his or her name an Annual Report of ChoiceOne Financial Services, Inc. on Form 10-K for its fiscal year ended December 31, 2011, and any amendments to that report, and to file it with the Securities and Exchange Commission. Each attorney shall have power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act to be done in the premises as fully and to all intents and purposes as the undersigned could do in person, and the undersigned hereby ratifies and approves the acts of such attorneys.

Dated: January 25, 2012	/s/ Donald VanSingel
	(signature)
	Donald VanSingel
	(type or print name)

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, James A. Bosserd, certify that:

1. I have reviewed this annual report on Form 10-K for the year ended December 31, 2011 of ChoiceOne Financial Services, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 28, 2012	/s/ James A. Bosserd
	James A. Bosserd
	President and Chief Executive Officer ChoiceOne Financial Services, Inc.

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Thomas L. Lampen, certify that:

1. I have reviewed this annual report on Form 10-K for the year ended December 31, 2011 of ChoiceOne Financial Services, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 28, 2012	/s/ Thomas L. Lampen
	Thomas L. Lampen
	Treasurer ChoiceOne Financial Services, Inc.

EX-32

EXHIBIT 32

CERTIFICATION

Pursuant to 18 U.S.C. § 1350, each of the undersigned hereby certifies in his capacity as an officer of ChoiceOne Financial Services, Inc. (the “Company”) that the Annual Report of the Company on Form 10-K for the accounting period ended December 31, 2011 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition of the Company at the end of such period and the results of operations of the Company for such period.

Dated: March 28, 2012	/s/ James A. Bosserd
	James A. Bosserd
	President and Chief Executive Officer

Dated: March 28, 2012	/s/ Thomas L. Lampen
	Thomas L. Lampen
	Treasurer

A signed original of this written statement required by Section 906 has been provided to ChoiceOne Financial Services, Inc. and will be retained by ChoiceOne Financial Services, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

1649851

XML

Financial Instruments

12 Months Ended

Dec. 31, 2011

Financial Instruments [Abstract]

Financial Instruments

Note 18 – Financial Instruments

Financial instruments as of December 31 were as follows:

(Dollars in thousands)

	2011				2010
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets:
Cash and due from banks	$	17,125	$	17,125	$	19,074	$	19,074
Federal funds sold		—		—		5,000		5,000
Securities available for sale		114,276		114,276		90,820		90,820
Federal Home Loan Bank and Federal Reserve Bank stock		3,749		3,749		4,159		4,159
Loans held for sale		1,262		1,262		1,610		1,610
Loans, net		314,914		319,017		312,211		314,781
Accrued interest receivable		2,106		2,106		2,000		2,000
Liabilities:
Demand, savings and money market deposits		252,505		252,505		229,378		229,378
Time deposits		150,860		151,881		160,506		159,616
Repurchase agreements		21,869		21,083		22,249		22,251
Advances from Federal Home Loan Bank		8,447		8,664		8,473		8,947
Accrued interest payable		176		176		231		231

The estimated fair values approximate the carrying amounts for all assets and liabilities except those described later in this paragraph. The methodology for determining the estimated fair value for securities available for sale is described in Note 19. The estimated fair value for loans is based on the rates charged at December 31 for new loans with similar maturities, applied until the loan is assumed to reprice or be paid. The allowance for loan losses is considered to be a reasonable estimate of discount for credit quality concerns. The estimated fair values for time deposits and FHLB advances are based on the rates paid at December 31 for new deposits or FHLB advances, applied until maturity. The estimated fair values for other financial instruments and off-balance sheet loan commitments are considered nominal.

XML

Securities

12 Months Ended

Dec. 31, 2011

Securities [Abstract]

Securities

Note 2 – Securities

The fair value of securities available for sale and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) at December 31 were as follows:

(Dollars in thousands)

	2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Government and federal agency	$	39,829	$	584	$	—		$	40,413
State and municipal		51,859		2,729		(89	)		54,499
Mortgage-backed		9,511		276		(7	)		9,780
Corporate		5,914		100		(3	)		6,011
FDIC-guaranteed financial institution debt		2,010		28		—			2,038
Equity securities		1,751		16		(232	)		1,535
Total	$	110,874	$	3,733	$	(331	)	$	114,276

(Dollars in thousands)	2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. Government and federal agency	$	28,737	$	382	$	(53	)	$	29,066
State and municipal		47,067		926		(373	)		47,620
Mortgage-backed		7,307		298		(6	)		7,599
Corporate		2,854		36		(7	)		2,883
FDIC-guaranteed financial institution debt		2,020		33		—			2,053
Equity securities		1,752		9		(162	)		1,599
Total	$	89,737	$	1,684	$	(601	)	$	90,820

Information regarding sales of securities available for sale follows:

(Dollars in thousands)

	2011		2010		2009
Proceeds from sales of securities	$	3,310	$	6,059	$	8,171
Gross realized gains		133		540		414
Gross realized losses		4		3		12
Loss on other than temporary impairment		—		94		47

Contractual maturities of securities available for sale at December 31, 2011 were as follows:

(Dollars in thousands)

	Fair Value
Due within one year	$	22,840
Due after one year through five years		56,661
Due after five years through ten years		22,872
Due after ten years		588
Total debt securities		102,961
Mortgage-backed securities, not due at a specific date		9,780
Equity securities		1,535
Total	$	114,276

Various securities were pledged as collateral for securities sold under agreements to repurchase. The carrying amount of securities pledged as collateral at December 31 was as follows:

(Dollars in thousands)

	2011		2010
Securities pledged for securities sold under agreements to repurchase	$	27,421	$	27,509

Securities with unrealized losses at year-end 2011 and 2010, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, were as follows:

(Dollars in thousands)

	2011
	Less than 12 months					More than 12 months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
State and municipal	$	2,938		$              (28	)	$	1,245		$            (61	)	$	4,183		$                (89	)
Mortgage-backed		2,045		(7	)		–		–			2,045		(7	)
Corporate		1,023		(3	)		–		–			1,023		(3	)
Equity securities		–		–			768		(232	)		768		(232	)
Total temporarily impaired	$	6,006		$              (38	)	$	2,013		$          (293	)	$	8,019		$              (331	)
(Dollars in thousands)	2010
	Less than 12 months					More than 12 months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Government and federal agency	$	4,663	$	(53	)	$	–	$	–		$	4,663	$	(53	)
State and municipal		11,341		(297	)		1,460		(76	)		12,801		(373	)
Mortgage-backed		938		(6	)		–		–			938		(6	)
Corporate		540		(7	)		–		–			540		(7	)
Equity securities		–		–			838		(162	)		838		(162	)
Total temporarily impaired	$	17,482	$	(363	)	$	2,298	$	(238	)	$	19,780	$	(601	)

One municipal security with a fair value of $306,000 was considered to be other than temporarily impaired as of December 31, 2011. The issuer of the security defaulted upon its maturity of September 1, 2009. Impairment losses of $47,000 in 2009 and $94,000 in 2010 had been recorded due to uncertainty as to when principal repayment would be received. Settlement was reached with the security's issuer in December 2011 and ChoiceOne anticipates it will receive the remaining carrying value of its security in the first quarter of 2012. In the case of the remaining state and municipal securities, ChoiceOne does not intend to sell the securities prior to a recovery in their value nor is it likely that ChoiceOne would be forced to sell them. Equity securities included a Money Market Preferred auction rate security (MMP) with a fair value of $768,000 as of December 31, 2011. Auctions remain active for the MMP and interest payments have remained current.

ChoiceOne evaluates all securities on a quarterly basis for other than temporary impairment. Consideration is given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of ChoiceOne to retain its investment in the issue for a period of time sufficient to allow for any anticipated recovery in fair value. No other than temporary impairments were recorded in 2011 and the impairment described in the previous paragraph was the only other than temporary impairment recorded in 2010.

XML

Quarterly Financial Data

12 Months Ended

Dec. 31, 2011

Quarterly Financial Data [Abstract]

Quarterly Financial Data

Note 22 – Quarterly Financial Data (Unaudited)

(Dollars in thousands)

							Earnings Per Share
	Interest Income		Net Interest Income		Net Income		Basic		Fully Diluted
2011
First Quarter	$	5,282	$	4,345	$	704	$	0.21	$	0.21
Second Quarter		5,386		4,472		904		0.28		0.28
Third Quarter		5,399		4,523		886		0.27		0.27
Fourth Quarter		5,408		4,582		1,019		0.31		0.31
2010
First Quarter	$	5,438	$	4,060	$	644	$	0.20	$	0.20
Second Quarter		5,494		4,210		669		0.20		0.20
Third Quarter		5,507		4,289		739		0.23		0.23
Fourth Quarter		5,522		4,436		659		0.20		0.20

There were no significant fluctuations in the quarterly financial data in 2010 or 2011. The growth in net income that occurred in 2011 was due to increased net interest income and noninterest income.

XML

Regulatory Capital

12 Months Ended

Dec. 31, 2011

Regulatory Capital [Abstract]

Regulatory Capital

Note 21 – Regulatory Capital

ChoiceOne Bank is subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. The prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If only adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as are asset growth and expansion, and plans for capital restoration are required. At year-end 2011 and 2010, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank's categories.

Actual capital levels and minimum required levels for ChoiceOne Bank were as follows:

(Dollars in thousands)

	Actual					Minimum Required for Capital Adequacy Purposes					Minimum Required to be Well Capitalized Under Prompt Corrective Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2011
Total capital (to risk weighted assets)	$	43,042		12.5	%	$	27,510		8.0	%	$	34,387		10.0	%
Tier 1 capital (to risk weighted assets)		38,960		11.3			13,755		4.0			20,632		6.0
Tier 1 capital (to average assets)		38,960		8.3			18,801		4.0			23,502		5.0
December 31, 2010
Total capital (to risk weighted assets)	$	40,588		12.1	%	$	26,787		8.0	%	$	33,483		10.0	%
Tier 1 capital (to risk weighted assets)		36,654		10.9			13,393		4.0			20,090		6.0
Tier 1 capital (to average assets)		36,654		7.9			18,502		4.0			23,128		5.0

Banking regulations limit capital distributions by state-chartered banks. Generally, capital distributions are limited to undistributed net income for the current and prior two years. At December 31, 2011, approximately $3,506,000 was available for ChoiceOne Bank to pay dividends to ChoiceOne Financial Services, Inc. ChoiceOne's ability to pay dividends to shareholders is dependent on the Bank, which is restricted by state law and regulations.

XML

Summary Of Significant Accounting Policies

12 Months Ended

Dec. 31, 2011

Summary Of Significant Accounting Policies [Abstract]

Summary Of Significant Accounting Policies

Note 1 – Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include ChoiceOne Financial Services, Inc., its wholly-owned subsidiary, ChoiceOne Bank, and ChoiceOne Bank's wholly-owned subsidiary, ChoiceOne Insurance Agencies, Inc. (together referred to as "ChoiceOne"). Intercompany transactions and balances have been eliminated in consolidation.

Nature of Operations

ChoiceOne Bank (the "Bank") is a full-service community bank that offers commercial, consumer, and real estate loans as well as traditional demand, savings and time deposits to both commercial and consumer clients in portions of Kent, Muskegon, Newaygo, and Ottawa counties in Michigan. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and real estate. Commercial loans are expected to be repaid from the cash flows from operations of businesses. Real estate loans are collateralized by either residential or commercial real estate.

ChoiceOne Insurance Agencies, Inc. (the "Insurance Agency") is a wholly-owned subsidiary of the Bank. The Insurance Agency sells insurance policies such as life and health for both commercial and consumer clients. The Insurance Agency also offers alternative investment products such as annuities and mutual funds through a registered broker.

Together, the Bank and the Insurance Agency account for substantially all of ChoiceOne's assets, revenues and operating income.

Use of Estimates

To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, ChoiceOne's management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided. Actual results may differ from these estimates. Estimates associated with securities available for sale, the allowance for loan losses, other real estate owned, core deposit intangible assets, loan servicing rights, goodwill, and fair values of certain financial instruments are particularly susceptible to change.

Cash and Cash Equivalents

Cash and cash equivalents are defined to include cash on hand, demand deposits with other banks, and federal funds sold. Cash flows are reported on a net basis for customer loan and deposit transactions, deposits with other financial institutions, and short-term borrowings with original terms of 90 days or less.

Securities

Securities are classified as available for sale because they might be sold before maturity. Securities classified as available for sale are carried at fair value, with unrealized holding gains and losses reported separately in the accumulated other comprehensive income or loss section of shareholders' equity, net of tax effect. Restricted investments in Federal Reserve Bank stock and Federal Home Loan Bank stock are carried at cost. Equity securities consist of investments in preferred stock, trust-preferred securities, and investments in common stock of other financial institutions.

Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized using the level-yield method without anticipating prepayments. Gains or losses on sales are recorded on the trade date based on the amortized cost of the security sold.

Management evaluates securities for other-than-temporary impairment ("OTTI") on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The evaluation of securities includes consideration given to the length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, whether the market decline was affected by macroeconomic conditions and whether ChoiceOne has the intent to sell the security or more likely than not will be required to sell the security before its anticipated recovery. In analyzing an issuer's financial condition, management may consider whether the securities are issued by the federal government or its agencies, or U.S. Government sponsored enterprises, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer's financial condition. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether ChoiceOne intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis. If ChoiceOne intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, the OTTI shall be recognized in earnings equal to the entire difference between the investment's amortized cost basis and its fair value at the balance sheet date. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment. If a security is determined to be other-than-temporarily impaired, but ChoiceOne does not intend to sell the security, only the credit portion of the estimated loss is recognized in earnings, with the other portion of the loss recognized in other comprehensive income.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned interest, deferred loan fees and costs, and an allowance for loan losses. Loans held for sale are reported at the lower of cost or market, on an aggregate basis.

Interest income on loans is reported on the interest method and includes amortization of net deferred loan fees and costs over the estimated loan term. Interest on loans is accrued based upon the principal balance outstanding. The accrual of interest is discontinued at the time at which commercial loans are 90 days past due unless the loan is secured by sufficient collateral and in the process of collection. Interest on consumer or real estate secured loans is discontinued at the time at which the loan is 120 days past due unless the credit is secured by sufficient collateral and in the process of collection. Past due status is based on the contractual terms of the loan. In all cases, loans are placed into nonaccrual status or charged off at an earlier date if collection of principal or interest is considered doubtful. Interest accrued but not received is reversed against interest income when the loans are placed into nonaccrual status. Interest received on such loans is applied to principal until qualifying for return to accrual. Loans are returned to accrual basis when all the principal and interest amounts contractually due are brought current and future payment is reasonably assured.

Allowance for Loan Losses

The allowance for loan losses is a valuation allowance for probable incurred credit losses. The allowance is increased by the provision for loan losses and decreased by loans charged off less any recoveries of charged off loans. Management estimates the allowance balance required based on past loan loss experience, the nature and volume of the loan portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged off. Loan losses are charged against the allowance when management believes the collectibility of a loan balance is not possible.

The allowance consists of general and specific components. The general component covers non-classified loans and is based on historical loss experience adjusted for current factors. The specific component relates to loans that are individually classified as impaired or loans otherwise classified as substandard or doubtful.

A loan is impaired when full payment under the loan terms is not expected. Commercial loans are evaluated for impairment on an individual loan basis. If a loan is considered impaired, a portion of the allowance for loan losses is allocated to the loan so that it is reported, net, at the present value of estimated future cash flows using the loan's existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans such as consumer and real estate mortgage loans are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures.

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation. Land is carried at cost. Land improvements are depreciated using the straight-line method with useful lives ranging from 7 to 15 years. Building and related components are depreciated using the straight-line method with useful lives ranging from 5 to 39 years. Leasehold improvements are depreciated over the shorter of the estimated life or the lease term. Furniture and equipment are depreciated using the straight-line method with useful lives ranging from 3 to 7 years. Fixed assets are periodically reviewed for impairment when events indicate their carrying amounts may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.

Other Real Estate Owned

Real estate properties acquired in the collection of a loan are initially recorded at fair value at acquisition establishing a new cost basis. Any reduction to fair value from the carrying value of the related loan is accounted for as a loan loss. After acquisition, a valuation allowance reduces the reported amount to the lower of the initial amount or fair value less costs to sell. Expenses to repair or maintain properties are included within other noninterest expenses. Gains and losses upon disposition and changes in the valuation allowance are reported net within other noninterest income.

Loan Servicing Rights

Servicing rights represent the allocated value of servicing rights on loans sold with servicing retained. Servicing rights are expensed in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair value of the rights, using groupings of the underlying loans as to interest rates and then, secondarily, as to geographic and prepayment characteristics. Fair value is determined using prices for similar assets with similar characteristics when available or based upon discounted cashflows using market-based assumptions. Any impairment of a grouping is reported as a valuation allowance.

Goodwill

Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of the acquired tangible assets and liabilities and identifiable intangible assets. Goodwill is assessed at least annually for impairment and any such impairment will be recognized in the period identified.

Loan Commitments and Related Financial Instruments

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet financing needs of customers. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

Employee Benefit Plans

ChoiceOne's 401(k) plan allows participants to contribute up to the IRS maximum. Contributions from ChoiceOne to its 401(k) plan are discretionary. ChoiceOne also allows retired employees to participate in its health insurance plan. Employees who have attained age 55 and completed at least ten years of service to ChoiceOne are eligible to participate as a retiree until they are eligible for Medicare. These postretirement benefits are accrued during the years in which the employee provides service.

Employee Stock Ownership Plan

The cost of shares issued to the Employee Stock Ownership Plan (the "ESOP") but not yet allocated to participants is presented as a reduction of shareholders' equity. Compensation expense is recorded based on the market price of the shares as they are committed to be released for allocation to participant accounts. The difference between the market price and the cost of shares committed to be released is recorded as an adjustment to additional paid-in capital. Dividends on allocated ESOP shares are recorded as a reduction of retained earnings while dividends on unallocated ESOP shares are reflected as a reduction of debt and accrued interest. Upon distribution of shares to a participant, the participant has the right to require the Company to purchase his or her shares at fair value in accordance with the terms and conditions of the ESOP. As such, these shares are not classified in shareholders' equity as permanent equity.

Income Taxes

Income tax expense is the sum of the current year income tax due and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

Earnings Per Share

Basic earnings per common share ("EPS") is based on weighted-average common shares outstanding. The weighted-average number of shares used in the computation of basic and diluted EPS includes shares allocated to the ESOP. Diluted EPS further assumes issue of any dilutive potential common shares issuable under stock options.

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income or loss. Other comprehensive income or loss includes unrealized gains and losses on securities available for sale, net of tax, and changes in the funded status of postretirement plans which are also recognized as a separate component of shareholders' equity.

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe that there are any such matters that may have a material effect on the financial statements.

Cash Restrictions

Cash on hand or on deposit with the Federal Reserve Bank of $111,000 and $83,000 was required to meet regulatory reserve and clearing requirements at December 31, 2011 and 2010, respectively. The balance in excess of the amount required was interest-bearing as of December 31, 2011 and December 31, 2010.

Stock-Based Compensation

ChoiceOne records stock-based compensation cost using the fair value method. Compensation costs related to stock options granted is disclosed in Note 14.

Dividend Restrictions

Banking regulations require the maintenance of certain capital levels and may limit the amount of dividends that may be paid by the Bank to ChoiceOne (see Note 21).

Fair Value of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, which are more fully documented in Note 19 to the consolidated financial statements. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Operating Segments

While ChoiceOne's management monitors the revenue streams of various products and services for the Bank and Insurance Agency, operations and financial performance are evaluated on a company-wide basis. Accordingly, all of the financial service operations are considered by management to be aggregated into one reportable operating segment.

Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board ("FASB") issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS ("ASU 2011-08"). The standard clarifies existing fair value measurement and disclosure requirements and changes existing principles and disclosure guidance. Clarifications were made to the relevancy of the highest and best use valuation concept, measurement of an instrument classified in an entity's shareholder's equity and disclosure of quantitative information about the unobservable inputs for level 3 fair value measurements. Changes to existing principles and disclosures included measurement of financial instruments managed within a portfolio, the application of premiums and discounts in fair value measurement, and additional disclosures related to fair value measurements. The updated guidance and requirements are effective for financial statements issued for the first interim or annual period beginning after December 15, 2011, and will be applied prospectively. The adoption of this standard is not expected to have a material effect on ChoiceOne's consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income ("ASU 2011-05"). This standard requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but continuous statements. This standard eliminates the option to present the components of other comprehensive income (OCI) as part of the statement of equity. This standard is effective for fiscal years ending after December 15, 2012. The implementation of this standard will only change the presentation of comprehensive income; it will not have an impact on ChoiceOne's consolidated financial position or results of operations. In December 2011, the FASB issued ASU 2011-12. This standard defers the requirement to present reclassification adjustments for each component of OCI in both net income and OCI on the face of the financial statements.

In September 2011, the FASB issued ASU No. 2011-08, Intangibles – Goodwill and Other: Testing Goodwill for Impairment ("ASU 2011-08"), to simplify how entities test goodwill for impairment. Prior to ASU 2011-08, an entity was required to perform a two-step test to assess goodwill for impairment. The first step compared the fair value of a reporting unit to its carrying amount, including goodwill. If the fair value of the reporting unit was less than its carrying value, the second step was used to measure the amount of the impairment loss, if any. ASU 2011-08 permits an entity to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing appropriate events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then it is not required to perform the two-step impairment test for the reporting unit. ASU 2011-08 applies to both an entity's annual and interim goodwill impairment tests. ASU 2011-08 is effective for fiscal years beginning after December 15, 2011 and early adoption is permitted. ChoiceOne plans to adopt ASU 2011-08 as of January 1, 2012. The adoption of ASU 2011-08 is not expected to have a material impact on ChoiceOne's consolidated financial condition or results of operations.

Reclassifications

Certain amounts presented in prior year consolidated financial statements have been reclassified to conform to the current year's presentation.

XML

Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2011	Dec. 31, 2010
Assets
Cash and due from banks	$ 17,125	$ 19,074
Federal funds sold		5,000
Cash and cash equivalents	17,125	24,074
Securities available for sale (Note 2)	114,276	90,820
Federal Home Loan Bank stock	2,478	2,889
Federal Reserve Bank stock	1,271	1,270
Loans held for sale	1,262	1,610
Loans (Note 3)	320,127	316,940
Allowance for loan losses (Note 3)	(5,213)	(4,729)
Loans, net	314,914	312,211
Premises and equipment, net (Note 5)	12,080	12,525
Other real estate owned, net (Note 7)	1,934	1,953
Cash value of life insurance policies	9,834	9,520
Intangible assets, net (Note 6)	2,172	2,620
Goodwill (Note 6)	13,728	13,728
Other assets	4,840	7,304
Total assets	495,914	480,524
Liabilities
Deposits - noninterest-bearing (Note 8)	78,263	66,932
Deposits - interest-bearing (Note 8)	325,102	322,952
Total deposits	403,365	389,884
Repurchase agreements (Note 9)	21,869	22,249
Advances from Federal Home Loan Bank (Note 10)	8,447	8,473
Other liabilities (Notes 11 and 13)	4,329	5,605
Total liabilities	438,010	426,211
Shareholders' Equity (Note 21)
Preferred stock; shares authorized: 100,000; shares outstanding: none
Common stock and paid-in capital, no par value; shares authorized: 7,000,000; shares outstanding: 3,293,269 in 2011 and 3,280,515 in 2010 (Note 14)	46,602	46,461
Retained earnings	8,887	6,952
Accumulated other comprehensive income, net (Note 16)	2,415	900
Total shareholders' equity	57,904	54,313
Total liabilities and shareholders' equity	$ 495,914	$ 480,524

XML

Consolidated Statements Of Changes In Shareholders' Equity (Parenthetical) (USD $)	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Consolidated Statements Of Changes In Shareholders' Equity [Abstract]
Dividends declared, cash	$ 0.48	$ 0.48	$ 0.48

XML

Earnings Per Share

12 Months Ended

Dec. 31, 2011

Earnings Per Share [Abstract]

Earnings Per Share

Note 15 – Earnings Per Share

(Dollars in thousands, except per share data)

	2011		2010		2009
Basic
Net income	$	3,513	$	2,711	$	1,478
Weighted average common shares outstanding		3,286,969		3,273,151		3,255,984
Basic earnings per common share	$	1.07	$	0.83	$	0.45
Diluted
Net income	$	3,513	$	2,711	$	1,478
Weighted average common shares outstanding		3,286,969		3,273,151		3,255,984
Plus: dilutive effect of assumed exercises of stock options		–		–		–
Average shares and dilutive potential common shares		3,286,969		3,273,151		3,255,984
Diluted earnings per common share	$	1.07	$	0.83	$	0.45

There were 46,656 stock options as of December 31, 2011 and 49,232 as of December 31, 2010 and December 31, 2009 considered to be anti-dilutive to earnings per share and thus have been excluded from the calculations above.

XML

Condensed Financial Statements Of Parent Company

12 Months Ended

Dec. 31, 2011

Condensed Financial Statements Of Parent Company [Abstract]

Condensed Financial Statements Of Parent Company

Note 17 – Condensed Financial Statements of Parent Company

Condensed Balance Sheets

(Dollars in thousands)

	December 31
	2011		2010
Assets
Cash	$	487	$	201
Securities available for sale		218		207
Other assets		26		76
Investment in ChoiceOne Bank		57,264		53,899
Total assets	$	57,995	$	54,383
Liabilities
Mandatory redeemable shares under ESOP, at fair value	$	65	$	64
Other liabilities		26		6
Total liabilities		91		70
Shareholders' equity		57,904		54,313
Total liabilities and shareholders' equity	$	57,995	$	54,383

Condensed Statements of Income

(Dollars in thousands)

	Years Ended December 31
	2011		2010		2009
Interest and dividends from ChoiceOne Bank	$	1,695	$	1,641	$	938
Interest and dividends from other securities		7		7		17
Gains on sales of securities		—		—		17
Other income		33		—		—
Total income		1,735		1,648		972
Other expenses		81		67		67
Income before income tax and equity in undistributed net income of subsidiary		1,654		1,581		905
Income tax benefit		16		23		17
Income before equity in undistributed net income of subsidiary		1,670		1,604		922
Equity in undistributed net income of subsidiary		1,843		1,107		556
Net income	$	3,513	$	2,711	$	1,478

Condensed Statements of Cash Flows

(Dollars in thousands)

	Years Ended December 31
	2011			2010			2009
Cash flows from operating activities:
Net income	$	3,513		$	2,711		$	1,478
Adjustments to reconcile net income to net cash from operating activities:
Equity in undistributed net income of subsidiary		(1,843	)		(1,107	)		(556	)
Amortization		—			—			2
Gains on sales of securities		—			—			(17	)
Changes in other assets		50			(17	)		3
Changes in other liabilities		17			(18	)		30
Net cash from operating activities		1,737			1,569			940
Cash flows from investing activities:
Sales of securities		—			—			524
Maturities of securities		—			200			—
Purchases of securities		—			(202	)		—
Net cash from investing activities		—			(2	)		524
Cash flows from financing activities:
Issuance of common stock		127			125			126
Cash dividends paid		(1,578	)		(1,572	)		(1,563	)
Net cash from financing activities		(1,451	)		(1,447	)		(1,437	)
Net change in cash and cash equivalents		286			120			27
Beginning cash and cash equivalents		201			81			54
Ending cash and cash equivalents	$	487		$	201		$	81

XML

Consolidated Statements Of Cash Flows (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Cash flows from operating activities:
Net income	$ 3,513	$ 2,711	$ 1,478
Adjustments to reconcile net income to net cash from operating activities:
Provision for loan losses	3,700	3,950	4,875
Depreciation	944	903	974
Amortization	1,300	1,173	1,102
Compensation expense on stock options and employee purchases	15	26	33
Gains on sales of securities	(129)	(537)	(402)
Loss on other than temporary impairment of securities		94	47
Gains on sales of loans	(672)	(682)	(601)
Loans originated for sale	(25,685)	(28,816)	(27,598)
Proceeds from loan sales	26,611	28,088	27,983
Earnings on bank-owned life insurance	(354)	(360)	(365)
(Gains)/losses on sales of other real estate owned	(279)	(96)	7
Write-downs of other real estate owned	255	528	442
Proceeds from sales of other real estate owned	3,015	1,174	4,200
Deferred federal income tax expense/(benefit)	378	(163)	(410)
Net change in:
Other assets	2,391	875	(2,289)
Other liabilities	(2,458)	357	(241)
Net cash from operating activities	12,545	9,225	9,235
Cash flows from investing activities:
Sales of securities available for sale	3,310	6,059	8,171
Maturities, prepayments and calls of securities available for sale	18,687	22,271	27,180
Purchases of securities available for sale	(43,651)	(44,063)	(31,269)
Purchase of Federal Reserve Bank stock	(1)		(1)
Sale of Federal Home Loan Bank stock	411
Loan originations and payments, net	(9,375)	875	(4,381)
Additions to premises and equipment	(499)	(1,510)	(816)
Net cash from investing activities	(31,118)	(16,368)	(1,116)
Cash flows from financing activities:
Net change in deposits	13,481	24,874	18,012
Net change in repurchase agreements	(380)	1,565	1,898
Proceeds from Federal Home Loan Bank advances	250		37,000
Payments on Federal Home Loan Bank advances	(276)	(13,525)	(55,002)
Issuance of common stock	127	125	126
Cash dividends	(1,578)	(1,572)	(1,563)
Net cash from financing activities	11,624	11,467	471
Net change in cash and cash equivalents	(6,949)	4,324	8,590
Beginning cash and cash equivalents	24,074	19,750	11,160
Ending cash and cash equivalents	17,125	24,074	19,750
Supplemental disclosures of cash flow information:
Cash paid for interest	3,608	5,112	7,288
Cash paid for income taxes	765	285	31
Loans transferred to other real estate owned	2,972	1,358	3,489
Other real estate owned transferred to premises and equipment			$ 331

XML

Consolidated Balance Sheets (Parenthetical) (USD $)	Dec. 31, 2011	Dec. 31, 2010
Consolidated Balance Sheets [Abstract]
Preferred stock, authorized	100,000	100,000
Preferred stock, outstanding	0	0
Common stock and paid in capital, no par value
Common stock and paid in capital shares, authorized	7,000,000	7,000,000
Common stock and paid in capital shares, outstanding	3,293,269	3,280,515

XML

Federal Home Loan Bank Advances

12 Months Ended

Dec. 31, 2011

Federal Home Loan Bank Advances [Abstract]

Federal Home Loan Bank Advances

Note 10 – Federal Home Loan Bank Advances

At December 31, advances from the Federal Home Loan Bank (the "FHLB") were as follows:

(Dollars in thousands)

	2011		2010
Maturities ranging from November 2012 to November 2024, fixed interest rates ranging from 2.54% to 4.16%, with an average rate of 3.58%	$	8,447
Maturities ranging from January 2011 to November 2024, fixed interest rates ranging from 2.54% to 4.16%, with an average rate of 3.58%			$	8,473
Total advances outstanding at year-end	$	8,447	$	8,473

Penalties are charged on fixed rate advances that are paid prior to maturity. No fixed rate advances were paid prior to maturity in 2011, 2010 or 2009. Advances maturing in 2012 and 2013 may be converted to a variable rate by the FHLB. If the FHLB exercises its option, the Bank may prepay the advance without penalty. Advances were secured by residential real estate loans with a carrying value of approximately $69 million at December 31, 2011 and $66 million at December 31, 2010. Based on this collateral, the Bank was eligible to borrow an additional $37 million at year-end 2011. The scheduled maturities of advances from the FHLB at December 31, 2011 were as follows (dollars in thousands):

2012	$	5,027
2013		3,028
2014		29
2015		30
2016		32
Thereafter		301
Total	$	8,447

XML

Document And Entity Information (USD $) In Millions, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Mar. 15, 2012	Jun. 30, 2011
Document And Entity Information [Abstract]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	FY
Entity Registrant Name	CHOICEONE FINANCIAL SERVICES INC
Entity Central Index Key	0000803164
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		3,293,626
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Well-known Seasoned Issuer	No
Entity Public Float			$ 40.3

XML

Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

Income Taxes

Note 11 – Income Taxes

Information as of December 31 and for the year follows:

(Dollars in thousands)

	2011		2010			2009
Provision for Income Taxes
Current federal income tax expense	$	682	$	817		$	215
Deferred federal income tax expense/(benefit)		378		(163	)		(410	)
Income tax expense/(benefit)	$	1,060	$	654		$	(195	)

	2011			2010			2009
Reconciliation of Income Tax Provision to Statutory Rate
Income tax computed at statutory federal rate of 34%	$	1,555		$	1,144		$	436
Tax exempt interest income		(437	)		(483	)		(608	)
Tax exempt earnings on bank-owned life insurance		(121	)		(122	)		(124	)
Nondeductible interest expense		16			25			44
Other items		47			90			57
Income tax expense/(benefit)	$	1,060		$	654		$	(195	)
Effective income tax rate		23	%		19	%		(15	)%

Components of Deferred Tax Assets and Liabilities	2011			2010
Deferred tax assets:
Allowance for loan losses	$	779		$	773
Deferred compensation		341			377
Write-downs on other real estate owned		339			309
Alternative minimum tax credit carryforward		75			154
Nonaccrual loan interest		57			124
Purchase accounting adjustments from merger		39			83
Other		231			259
Total deferred tax assets		1,861			2,079
Deferred tax liabilities:
Depreciation		1,382			1,142
Unrealized gains on securities available for sale		1,157			369
Purchase accounting adjustments from merger		743			883
Loan servicing rights		108			118
Post-retirement benefits obligation		87			95
Other		186			116
Total deferred tax liabilities		3,663			2,723
Net deferred tax liabilities	$	(1,802	)	$	(644	)

ChoiceOne had a deferred tax asset of $45,000 as of December 31, 2011 and $69,000 as of December 31, 2010 that resulted from capital losses incurred on the sales of equity securities in 2009 and 2010. A capital loss of $72,000 was carried back to 2007 during 2011 which utilized $24,000 of the deferred tax asset. A valuation allowance of $45,000 had been recorded as of December 31, 2011 and December 31, 2010 due to the uncertainty as to ChoiceOne's ability to generate capital gains in the future that can offset the capital loss carryforward. ChoiceOne also had a deferred tax asset of $44,000 as of December 31, 2011 and $42,000 as of December 31, 2010 that was related to unexercised stock options. A valuation allowance for the entire balance had been recorded due to the fact that the exercise price of all of the options was higher than the market price of ChoiceOne's stock as of the end of both 2011 and 2010. The valuation allowances totaling $89,000 as of December 31, 2011 and $87,000 as of December 31, 2010 have been netted against the total deferred tax assets listed above.

XML

Consolidated Statements Of Income (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009
Interest income
Loans, including fees	$ 18,398	$ 19,081	$ 19,915
Securities
Taxable	1,789	1,460	1,390
Tax exempt	1,268	1,398	1,774
Other	20	22	7
Total interest income	21,475	21,961	23,086
Interest expense
Deposits	2,956	3,914	5,553
Advances from Federal Home Loan Bank	307	748	1,186
Other borrowings	290	304	351
Total interest expense	3,553	4,966	7,090
Net interest income	17,922	16,995	15,996
Provision for loan losses (Note 3)	3,700	3,950	4,875
Net interest income after provision for loan losses	14,222	13,045	11,121
Noninterest income
Customer service charges	3,454	3,160	3,177
Insurance and investment commissions	672	690	690
Gains on sales of loans (Note 4)	672	682	601
Gains on sales of securities (Note 2)	129	537	402
Loss on other than temporary impairment of securities (Note 2)		(94)	(47)
Gains (losses) on sales and write-downs of other assets (Note 7)	29	(432)	(434)
Earnings on life insurance policies	354	360	365
Other income	829	666	667
Total noninterest income	6,139	5,569	5,421
Noninterest expense
Salaries and benefits (Notes 13 and 14)	7,348	7,040	6,902
Occupancy and equipment (Note 5)	2,247	2,157	2,227
Data processing	1,740	1,651	1,599
Professional fees	793	675	629
Supplies and postage	517	497	504
Advertising and promotional	160	168	124
Intangible asset amortization (Note 6)	448	448	469
Loan and collection expense	575	678	777
FDIC insurance	488	641	785
Other expense	1,472	1,294	1,243
Total noninterest expense	15,788	15,249	15,259
Income before income tax	4,573	3,365	1,283
Income tax expense/(benefit) (Note 11)	1,060	654	(195)
Net income	$ 3,513	$ 2,711	$ 1,478
Basic earnings per common share (Note 15)	$ 1.07	$ 0.83	$ 0.45
Diluted earnings per common share (Note 15)	$ 1.07	$ 0.83	$ 0.45
Dividends declared per common share	$ 0.48	$ 0.48	$ 0.48

XML

Premises And Equipment

12 Months Ended

Dec. 31, 2011

Premises And Equipment [Abstract]

Premises And Equipment

Note 5 – Premises and Equipment

As of December 31, premises and equipment consisted of the following:

(Dollars in thousands)

	2011			2010
Land and land improvements	$	4,084		$	4,025
Leasehold improvements		36			36
Buildings		11,080			10,950
Furniture and equipment		3,768			4,178
Total cost		18,968			19,189
Accumulated depreciation		(6,888	)		(6,664	)
Premises and equipment, net	$	12,080		$	12,525

Depreciation expense was $944,000, $903,000, and $974,000 for 2011, 2010 and 2009, respectively.

The Bank leases certain branch properties and automated-teller machine locations in its normal course of business. Rent expense totaled $75,000, $78,000, and $71,000 for 2011, 2010 and 2009, respectively. Rent commitments under non-cancelable operating leases were as follows, before considering renewal options that generally are present (dollars in thousands):

2012	$	58
2013		35
Total	$	93

XML

Mortgage Banking

12 Months Ended

Dec. 31, 2011

Mortgage Banking [Abstract]

Mortgage Banking

Note 4 – Mortgage Banking

Activity during the year was as follows:

(Dollars in thousands)

	2011		2010		2009
Loans originated for resale, net of principal payments	$	25,685	$	28,816	$	27,598
Proceeds from loan sales		26,611		28,088		27,983
Net gains on sales of loans held for sale		672		682		601
Loan servicing fees, net of amortization		161		41		4

Loans serviced for others are not reported as assets in the accompanying consolidated balance sheets. The unpaid principal balances of these loans were $96 million and $107 million at December 31, 2011 and 2010, respectively. The Bank maintains custodial escrow balances in connection with these serviced loans; however, such escrows were immaterial at December 31, 2011 and 2010.

Activity for loan servicing rights was as follows:

(Dollars in thousands)

	2011			2010			2009
Balance, beginning of year	$	347		$	491		$	580
Capitalized		95			122			210
Amortization		(121	)		(266	)		(299	)
Balance, end of year	$	321		$	347		$	491

The fair value of loan servicing rights was $797,000 and $852,000 as of December 31, 2011 and 2010, respectively. Consequently, a valuation allowance was not necessary at year-end 2011 or 2010. The fair value of servicing rights at December 31, 2011 was determined using a discount rate of 7.7% and prepayment speeds ranging from 7% to 26%. The fair value of servicing rights at December 31, 2010 was determined using a discount rate of 7.7% and prepayment speeds ranging from 0% to 35%.

XML

Other Comprehensive Income (Loss)

12 Months Ended

Dec. 31, 2011

Other Comprehensive Income (Loss) [Abstract]

Other Comprehensive Income (Loss)

Note 16 – Other Comprehensive Income (Loss)

Other comprehensive income (loss) components and related taxes follow:

(Dollars in thousands)

	2011			2010			2009
Unrealized holding gains on available for sale securities	$	2,448		$	635		$	1,364
Less reclassification adjustments for gains included in net income		129			443			355
Net unrealized gains		2,319			192			1,009
Less tax effect		789			65			344
Net-of-tax amount		1,530			127			665
Change in funded status of post-retirement benefit plan		(23	)		(21	)		9
Tax effect		(8	)		(7	)		3
Net-of-tax amount		(15	)		(14	)		6
Total	$	1,515		$	113		$	671

Accumulated other comprehensive income, a component of equity, was comprised of the following at December 31:

(Dollars in thousands)

	2011			2010
Unrealized holding gains on available for sale securities	$	3,402		$	1,083
Unrecognized actuarial gains on post-retirement benefit plan		258			281
Tax effect		(1,245	)		(464	)
Net accumulated other comprehensive income	$	2,415		$	900

XML

Related Party Transactions

12 Months Ended

Dec. 31, 2011

Related Party Transactions [Abstract]

Related Party Transactions

Note 12 – Related Party Transactions

Loans to executive officers, directors and their affiliates were as follows at December 31:

(Dollars in thousands)

	2011			2010
Balance, beginning of year	$	6,568		$	5,786
New loans		948			2,152
Repayments		(1,262	)		(1,370	)
Balance, end of year	$	6,254		$	6,568

Deposits from executive officers, directors and their affiliates were $14.8 million and $13.5 million at December 31, 2011 and 2010, respectively.

XML

Deposits

12 Months Ended

Dec. 31, 2011

Deposits [Abstract]

Deposits

Note 8 – Deposits

Deposit balances as of December 31 consisted of the following:

(Dollars in thousands)

	2011		2010
Noninterest-bearing demand deposits	$	78,263	$	66,932
Interest-bearing demand deposits		64,498		59,853
Money market deposits		63,007		59,021
Savings deposits		46,737		43,572
Local certificates of deposit		144,983		152,602
Brokered certificates of deposit		5,877		7,904
Total deposits	$	403,365	$	389,884

Scheduled maturities of certificates of deposit at December 31 were as follows:

(Dollars in thousands)

2012	$	107,117
2013		26,084
2014		4,721
2015		5,180
2016		6,755
Thereafter		1,003
Total	$	150,860

The Bank had certificates of deposit issued in denominations of $100,000 or greater totaling $70.9 million and $72.6 million at December 31, 2011 and 2010, respectively. The Bank had brokered certificates of deposit totaling $5.9 million at December 31, 2011 compared to $7.9 million at December 31, 2010. As of December 31, 2011, the weighted average interest rate on these brokered certificates of deposit was 1.19% with maturities ranging from June 2012 to May 2013. In addition, the Bank had $18.3 million of certificates of deposit as of December 31, 2011 and $18.5 million as of December 31, 2010 that had been issued through the Certificate of Deposit Account Registry Service (CDARS). Although certificates of deposit issued through CDARS are issued to local customers, this type of deposit is classified as brokered deposits for regulatory purposes.

XML

Goodwill And Intangible Assets

12 Months Ended

Dec. 31, 2011

Goodwill And Intangible Assets [Abstract]

Goodwill And Intangible Assets

Note 6 – Goodwill and Intangible Assets

Goodwill

There were no changes in the goodwill balance in 2011 or 2010. ChoiceOne engaged an outside consulting firm to assist management in performing its annual evaluation of goodwill for impairment as of June 30, 2011. The following steps were used in the valuation: determination of the reporting unit, determination of the appropriate standard of value, determination of the appropriate level of value, calculation of fair value, and comparison of the fair value computed to the equity carrying value. It was determined that the relevant reporting unit to be valued was ChoiceOne Bank. The standard of value used in the valuation was fair value as determined by generally accepted accounting principles. The appropriate level of value was determined to be the controlling interest level. The appraisal methodology used to calculate the fair value included the income approach, which was a discounted cash flow value based on projected earnings capacity. The income approach used a discount rate of 12.90%, a growth assumption of 0.2% for assets for the first year and 1.0% in subsequent years, and an assumption of cost savings of 20% of noninterest expense as a result of synergies and cost reductions from a change in control. The appraisal methodology also included the market approach, which was based on price-to-earnings multiples, price-to-tangible book value ratios, and core deposit premiums for selected bank sale transactions. The asset approach was also an approach that was reviewed, but it was not used in determining the fair value since it did not render a control level indication of value. The results from the valuation approaches were used to calculate an estimate of the fair value of ChoiceOne's equity, which was compared to the carrying value of equity to determine whether the Step 1 test under generally accepted accounting principles that govern the valuation of goodwill was passed. The goodwill analysis determined that the fair value of ChoiceOne's equity exceeded the carrying value by 7.8%. Based on this assessment, management believed that there was no indication of goodwill impairment at June 30, 2011. Based on the testing performed and a review of factors that might impact ChoiceOne's stock value subsequent to the annual evaluation, no impairment of goodwill was deemed to exist as of December 31, 2011.

Acquired Intangible Assets

Information for acquired intangible assets at December 31 follows:

(Dollars in thousands)

	2011				2010
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Core deposit intangible	$	4,134	$	2,136	$	4,134	$	1,723
Other intangible assets		348		174		348		139
Totals	$	4,482	$	2,310	$	4,482	$	1,862

The core deposit intangible and other intangible assets are being amortized on a straight-line basis over ten years. Aggregate amortization expense was $448,000, $448,000 and $469,000 for 2011, 2010 and 2009, respectively. The estimated amortization expense for the next five years ending December 31 is as follows:

(Dollars in thousands)

	Core Deposit Intangible		Other Intangible Assets		Total
2012	$	414	$	35	$	449
2013		413		35		448
2014		413		35		448
2015		413		35		448
2016		345		34		379
Total	$	1,998	$	174	$	2,172

XML

Other Real Estate Owned

12 Months Ended

Dec. 31, 2011

Other Real Estate Owned [Abstract]

Other Real Estate Owned

Note 7 – Other Real Estate Owned

Other real estate owned represents residential and commercial properties primarily owned as a result of loan collection activities and is reported net of a valuation allowance. Activity within other real estate owned was as follows:

(Dollars in thousands)

	2011			2010			2009
Balance, beginning of year	$	1,953		$	2,201		$	3,692
Transfers from loans		2,972			1,358			3,489
Reclassification to buildings		—			—			(331	)
Proceeds from sales		(3,015	)		(1,174	)		(4,200	)
Gains/(losses) on sales		279			96			(7	)
Write-downs		(255	)		(528	)		(442	)
Balance, end of year	$	1,934		$	1,953		$	2,201

Activity in the valuation allowance on other real estate owned was as follows:

(Dollars in thousands)

	2011			2010			2009
Balance, beginning of year	$	909		$	438		$	206
Write-downs charged to expense		255			528			442
Deletions from sales of other real estate owned		(167	)		(57	)		(210	)
Balance, end of year	$	997		$	909		$	438

XML

Repurchase Agreements

12 Months Ended

Dec. 31, 2011

Repurchase Agreements [Abstract]

Repurchase Agreements

Note 9 – Repurchase Agreements

Securities sold under agreements to repurchase are advances to the Bank by customers or another bank. These agreements are direct obligations of the Bank and are secured by securities held in safekeeping at a correspondent bank. Repurchase agreements with Bank customers mature daily. As of December 31, 2011 and December 31, 2010, the Bank had a $5 million structured repurchase agreement with a correspondent bank maturing on July 31, 2012 with a fixed interest rate of 4.55%. The repurchase agreement became putable by the correspondent quarterly starting July 1, 2009. Information regarding repurchase agreements follows:

(Dollars in thousands)

	2011			2010
Outstanding balance at December 31	$	21,869		$	22,249
Average interest rate at December 31		1.27	%		1.33	%
Average balance during the year	$	20,815		$	19,269
Average interest rate during the year		1.38	%		1.58	%
Maximum month end balance during the year	$	22,249		$	22,249

XML

Stock Options

12 Months Ended

Dec. 31, 2011

Stock Options [Abstract]

Stock Options

Note 14 – Stock Options

Options to buy stock are granted to key employees under an incentive stock option plan to provide them with an additional equity interest in ChoiceOne. The plan provides for the issuance of up to 147,767 shares of common stock. ChoiceOne recognized compensation expense of $5,000 in 2011, $15,000 in 2010, and $22,000 in 2009 in connection with stock options that vested for current participants during these years. The maximum option term is 10 years and options vest over 3 years. At December 31, 2011, there were 98,835 options available for future grants.

A summary of the activity in the plan follows:

	2011				2010				2009
	Shares		Weighted average exercise price		Shares		Weighted average exercise price		Shares		Weighted average exercise price
Options outstanding, beginning of year		49,232	$	16.46		49,232	$	16.46		49,232	$	16.46
Options granted		–		–		–		–		–		–
Options exercised		2,576	$	13.44		–		–		–		–
Options forfeited or expired		–		–		–		–		–		–
Options outstanding, end of year		46,656	$	16.62		49,232	$	16.46		49,232	$	16.46
Options exercisable at December 31		46,656	$	16.62		46,357	$	16.64		41,107	$	16.78

The range of prices for options outstanding and exercisable at the end of 2011 ranged from $13.04 to $21.43 per share. The weighted average remaining contractual life of options outstanding and exercisable at the end of 2011 was approximately 3.7 years. The exercise price of all options outstanding was higher than ChoiceOne's closing stock price as of the end of 2011. As a result, the aggregate intrinsic value of both options outstanding and options exercisable was $0 as of December 31, 2011. The number of options, weighted average exercise prices, and fair value of options granted has been adjusted for all stock dividends and splits. Information pertaining to options outstanding at December 31, 2011 is as follows:

Exercise price of stock options:	Number of options outstanding at year-end		Number of options exercisable at year-end		Average remaining contractual life (in years)
$13.04		3,306		3,306		0.14
$13.50		10,000		10,000		6.07
$13.70		4,725		4,725		1.04
$16.31		6,299		6,299		2.06
$17.95		9,500		9,500		5.05
$18.85		6,000		6,000		4.05
$21.43		6,826		6,826		3.05

The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model. ChoiceOne uses historical data to estimate the volatility of the market price of ChoiceOne stock and employee terminations within the valuation model. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. No options were granted in 2011, 2010, or 2009.

During 2011, 2,875 shares were vested at an average exercise price of $13.50. As of December 31, 2011, there was no unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plan.

XML

Fair Value Measurements

12 Months Ended

Dec. 31, 2011

Fair Value Measurements [Abstract]

Fair Value Measurements

Note 19 – Fair Value Measurements

The following tables present information about the Bank's assets and liabilities measured at fair value on a recurring basis at December 31, 2011 and December 31, 2010, and the valuation techniques used by the Bank to determine those fair values.

In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that the Bank has the ability to access.

Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability.

In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Bank's assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability.

There were no liabilities measured at fair value as of December 31, 2011 or December 31, 2010. Disclosures concerning assets measured at fair value are as follows:

Assets Measured at Fair Value on a Recurring Basis

(Dollars in Thousands)

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at Date Indicated
Investment Securities, Available for Sale – December 31, 2011
U.S. Government and federal agency	$	—	$	40,413	$	—	$	40,413
State and municipal		—		52,228		2,271		54,499
Mortgage-backed		—		9,780		—		9,780
Corporate		—		6,011		—		6,011
FDIC-guaranteed financial institution debt		—		2,038		—		2,038
Equity securities		—		1,035		500		1,535
Total	$	—	$	111,505	$	2,771	$	114,276
Investment Securities, Available for Sale – December 31, 2010
U.S. Government and federal agency	$	—	$	29,066	$	—	$	29,066
State and municipal		—		45,281		2,339		47,620
Mortgage-backed		—		7,599		—		7,599
Corporate		—		2,883		—		2,883
FDIC-guaranteed financial institution debt		—		2,053		—		2,053
Equity securities		—		1,099		500		1,599
Total	$	—	$	87,981	$	2,839	$	90,820

Securities classified as available for sale are generally reported at fair value utilizing Level 2 inputs. ChoiceOne's external investment advisor obtained fair value measurements from an independent pricing service that uses matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities (Level 2 inputs). The fair value measurements considered observable data that may include dealer quotes, market spreads, cash flows and the bonds' terms and conditions, among other things. Securities classified in Level 2 included U.S. Government and federal agency securities, state and municipal securities, mortgage-backed securities, corporate bonds, FDIC- guaranteed financial institution debt, and equity securities. The Company classified certain state and municipal securities and privately issued trust preferred securities as Level 3. Based on the lack of observable market data, estimated fair values were based on the observable data available and reasonable unobservable market data.

ChoiceOne reviewed the methodologies used to estimate the fair values of all securities in 2010. Based on an updated analysis, it was determined that the fair values of U.S. Government and federal agency securities, corporate securities, and FDIC-guaranteed financial institution debt were based upon Level 2 inputs. These securities classes, which were previously disclosed as based on Level 1 inputs, have been adjusted accordingly.

Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis

(Dollars in Thousands)

	2011			2010
Investment Securities, Available for Sale
Balance, January 1	$	2,839		$	2,807
Total realized and unrealized gains included in income		—			—
Total unrealized gains included in other comprehensive income		164			10
Net purchases, sales, calls, and maturities		(299	)		(284	)
Net transfers into Level 3		67			306
Balance, December 31	$	2,771		$	2,839

Of the Level 3 assets that were still held by the Bank at December 31, 2011, the net unrealized gain for the twelve months ended December 31, 2011 was $164,000, which is recognized in other comprehensive income in the consolidated balance sheet. There were no sales or purchases of Level 3 securities in 2011. One security was reclassified from a Level 2 measurement of fair value to a Level 3 measurement in both 2010 and 2011 as a result of a change in the marketability of the security.

Both observable and unobservable inputs may be used to determine the fair value of positions classified as Level 3 assets and liabilities. As a result, the unrealized gains and losses for these assets and liabilities presented in the tables above may include changes in fair value that were attributable to both observable and unobservable inputs.

Available for sale investment securities categorized as Level 3 assets consist of bonds issued by local municipalities and a trust-preferred security. The Bank estimates the fair value of these assets based on the present value of expected future cash flows using management's best estimate of key assumptions, including forecasted interest yield and payment rates, credit quality and a discount rate commensurate with the current market and other risks involved.

The Bank also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets are not normally measured at fair value, but can be subject to fair value adjustments in certain circumstances, such as impairment. Disclosures concerning assets measured at fair value on a non-recurring basis are as follows:

Assets Measured at Fair Value on a Non-recurring Basis

(Dollars in Thousands)

	Balance at Dates Indicated		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Losses for the Period Ended
Impaired Loans
December 31, 2011	$	4,501	$	–	$	–	$	4,501	$	501
December 31, 2010	$	6,573	$	–	$	–	$	6,573	$	164
Other Real Estate
December 31, 2011	$	1,934	$	–	$	–	$	1,934	$	255
December 31, 2010	$	1,953	$	–	$	–	$	1,953	$	528

Impaired loans categorized as Level 3 assets consist of non-homogeneous loans that are considered impaired. The Bank estimates the fair value of the loans based on the present value of expected future cash flows using management's best estimate of key assumptions. These assumptions include future payment ability, timing of payment streams, and estimated realizable values of available collateral (typically based on outside appraisals). The changes in fair value consisted of charge-downs of impaired loans that were posted to the allowance for loan losses and write-downs of other real estate owned that were posted to a valuation account. The fair value of other real estate owned was based on appraisals or other reviews of property values, adjusted for estimated costs to sell.

XML

Consolidated Statements Of Changes In Shareholders' Equity (USD $) In Thousands, except Share data, unless otherwise specified	Common Stock And Paid In Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income, Net [Member]	Total
Balance at Dec. 31, 2008	$ 46,171	$ 5,898	$ 116	$ 52,185
Balance, shares at Dec. 31, 2008	3,246,109
Comprehensive income:
Net income		1,478		1,478
Net change in unrealized gain on securities available for sale			665	665
Net change in funded status of post-retirement benefit plan			6	6
Total comprehensive income				2,149
Shares issued	126			126
Shares issued, shares	19,605
Change in ESOP repurchase obligation	(4)			(4)
Stock-based compensation	22			22
Effect of employee stock purchases	11			11
Cash dividends declared ($0.48 per share)		(1,563)		(1,563)
Balance at Dec. 31, 2009	46,326	5,813	787	52,926
Balance, shares at Dec. 31, 2009	3,265,714
Comprehensive income:
Net income		2,711		2,711
Net change in unrealized gain on securities available for sale			127	127
Net change in funded status of post-retirement benefit plan			(14)	(14)
Total comprehensive income				2,824
Shares issued	125			125
Shares issued, shares	14,805
Shares cancelled, shares	(4)
Change in ESOP repurchase obligation	(16)			(16)
Stock-based compensation	15			15
Effect of employee stock purchases	11			11
Cash dividends declared ($0.48 per share)		(1,572)		(1,572)
Balance at Dec. 31, 2010	46,461	6,952	900	54,313
Balance, shares at Dec. 31, 2010	3,280,515
Comprehensive income:
Net income		3,513		3,513
Net change in unrealized gain on securities available for sale			1,530	1,530
Net change in funded status of post-retirement benefit plan			(15)	(15)
Total comprehensive income				5,028
Shares issued	127			127
Shares issued, shares	12,754
Change in ESOP repurchase obligation	(1)			(1)
Stock-based compensation	5			5
Effect of employee stock purchases	10			10
Cash dividends declared ($0.48 per share)		(1,578)		(1,578)
Balance at Dec. 31, 2011	$ 46,602	$ 8,887	$ 2,415	$ 57,904
Balance, shares at Dec. 31, 2011	3,293,269

XML

Loans And Allowance For Loan Losses

12 Months Ended

Dec. 31, 2011

Loans And Allowance For Loan Losses [Abstract]

Loans And Allowance For Loan Losses

Note 3 – Loans and Allowance for Loan Losses

The Bank's loan portfolio as of December 31 was as follows:

(Dollars in thousands)

	2011			2010
Agricultural	$	38,929		$	29,681
Commercial and industrial		58,685			55,947
Consumer		18,657			16,709
Real estate – commercial		106,250			116,351
Real estate - construction		1,169			853
Real estate - residential		96,437			97,399
Loans, gross		320,127			316,940
Allowance for loan losses		(5,213	)		(4,729	)
Loans, net	$	314,914		$	312,211

Activity in the allowance for loan losses was as follows:

(Dollars in thousands)

	2011			2010			2009
Balance, beginning of year	$	4,729		$	4,322		$	3,600
Provision charged to expense		3,700			3,950			4,875
Recoveries credited to the allowance		452			341			541
Loans charged off		(3,668	)		(3,884	)		(4,694	)
Balance, end of year	$	5,213		$	4,729		$	4,322

ChoiceOne manages its credit risk through the use of its loan policy and its loan approval process and by monitoring of loan credit performance. The loan approval process for commercial loans involves individual and group approval authorities. Individual authority levels are based on the experience of the lender. Group authority approval levels can consist of an internal loan committee that includes the Bank's President or Senior Lender and other loan officers for loans that exceed individual approval levels, or a loan committee of the Board of Directors for larger commercial loans. Most consumer loans are approved by individual loan officers based on standardized underwriting criteria, with larger consumer loans subject to approval by the internal loan committee.

Ongoing credit review of commercial loans is the responsibility of the loan officers. ChoiceOne's internal credit committee meets at least monthly and reviews loans with payment issues and loans with a risk rating of 5, 6, or 7. Risk ratings of commercial loans are reviewed periodically and adjusted if needed. ChoiceOne's consumer loan portfolio is primarily monitored on an exception basis. Loans where payments are past due are turned over to the Bank's collection department, who works with the borrower to bring payments current or takes other actions when necessary. In addition to internal reviews of credit performance, ChoiceOne contracts with a third party for independent loan review that monitors the loan approval process and the credit quality of the loan portfolio.

Activity in the allowance for loan losses and balances in the loan portfolio were as follows:

(Dollars in thousands)

	Agricultural			Commercial and Industrial			Consumer			Commercial Real Estate			Construction Real Estate			Residential Real Estate			Unallocated			Total
2011
Allowance for Loan Losses
Beginning balance	$	181		$	641		$	243		$	1,729		$	2		$	1,554		$	379		$	4,729
Charge-offs		(45	)		(228	)		(361	)		(1,357	)		–			(1,677	)		–			(3,668	)
Recoveries		10			32			217			89			–			104			–			452
Provision		(91	)		164			98			1,838			32			1,866			(207	)		3,700
Ending balance	$	55		$	609		$	197		$	2,299		$	34		$	1,847		$	172		$	5,213
Individually evaluated for impairment	$	–		$	7		$	–		$	424		$	–		$	–		$	–		$	431
Collectively evaluated for impairment	$	55		$	602		$	197		$	1,875		$	34		$	1,847		$	172		$	4,782
Loans
Individually evaluated for impairment	$	–		$	163		$	–		$	2,758		$	–		$	1,580					$	4,501
Collectively evaluated for impairment		38,929			58,522			18,657			103,492			1,169			94,857						315,626
Ending balance	$	38,929		$	58,685		$	18,657		$	106,250		$	1,169		$	96,437					$	320,127
2010
Allowance for Loan Losses
Beginning balance	$	124		$	735		$	306		$	1,546		$	3		$	1,590		$	18		$	4,322
Charge-offs		–			(765	)		(444	)		(1,523	)		–			(1,152	)		–			(3,884	)
Recoveries		–			68			230			16			–			27			–			341
Provision		57			603			151			1,690			(1	)		1,089			361			3,950
Ending balance	$	181		$	641		$	243		$	1,729		$	2		$	1,554		$	379		$	4,729
Individually evaluated for impairment	$	–		$	50		$	–		$	531		$	–		$	–		$	–		$	581
Collectively evaluated for impairment	$	181		$	591		$	243		$	1,198		$	2		$	1,554		$	379		$	4,148
Loans
Individually evaluated for impairment	$	39		$	272		$	–		$	3,529		$	–		$	2,733					$	6,573
Collectively evaluated for impairment		29,642			55,675			16,709			112,822			853			94,666						310,367
Ending balance	$	29,681		$	55,947		$	16,709		$	116,351		$	853		$	97,399					$	316,940

	Agricultural		Commercial and Industrial			Consumer			Commercial Real Estate			Construction Real Estate			Residential Real Estate			Unallocated			Total
2009
Allowance for Loan Losses
Beginning balance	$	–	$	754		$	351		$	1,100		$	5		$	1,124		$	266		$	3,600
Charge-offs		–		(1,558	)		(535	)		(1,218	)		(14	)		(1,369	)		–			(4,694	)
Recoveries		–		102			246			58			29			106			–			541
Provision		124		1,437			244			1,606			(17	)		1,729			(248	)		4,875
Ending balance	$	124	$	735		$	306		$	1,546		$	3		$	1,590		$	18		$	4,322
Individually evaluated for impairment	$	29	$	52		$	–		$	1,031		$	–		$	–		$	–		$	1,112
Collectively evaluated for impairment	$	95	$	683		$	306		$	515		$	3		$	1,590		$	18		$	3,210
Loans
Individually evaluated for impairment	$	378	$	698		$	–		$	6,886		$	–		$	1,785					$	9,747
Collectively evaluated for impairment		30,944		53,266			16,285			114,214			1,158			97,102						312,969
Ending balance	$	31,322	$	53,964		$	16,285		$	121,100		$	1,158		$	98,887					$	322,716

The process to monitor the credit quality of ChoiceOne's loan portfolio includes tracking (1) the risk ratings of business loans, (2) the level of classified business loans, and (3) delinquent and nonperforming consumer loans. Business loans are risk rated on a scale of 1 to 8. A description of the characteristics of the ratings follows:

Risk rating 1 through 3: These loans are considered pass credits. They exhibit acceptable to exceptional credit risk and demonstrate the ability to repay the loan from normal business operations.

Risk rating 4: These loans are considered watch credits. They have potential developing weaknesses that, if not corrected, may cause deterioration in the ability of the borrower to repay the loan. While a loss is possible for a loan with this rating, it is not anticipated.

Risk rating 5: These loans are considered special mention credits. Loans in this risk rating are considered to be inadequately protected by the net worth and debt service coverage of the borrower or of any pledged collateral. These loans have well defined weaknesses that may jeopardize the borrower's ability to repay the loan. If the weaknesses are not corrected, loss of principal and interest could be probable.

Risk rating 6: These loans are considered substandard credits. These loans have well defined weaknesses, the severity of which makes collection of principal and interest in full questionable. Loans in this category may be placed on nonaccrual status.

Risk rating 7: These loans are considered doubtful credits. Some loss of principal and interest has been determined to be probable. The estimate of the amount of loss could be affected by factors such as the borrower's ability to provide additional capital or collateral. Loans in this category are on nonaccrual status.

Risk rating 8: These loans are considered loss credits. They are considered uncollectible and will be charged off against the allowance for loan losses.

Information regarding the Bank's credit exposure as of December 31 was as follows:

(Dollars in thousands)

Corporate Credit Exposure - Credit Risk Profile By Creditworthiness Category

	Agricultural				Commercial and Industrial				Commercial Real Estate
	2011		2010		2011		2010		2011		2010
Risk ratings 1 to 3	$	26,697	$	19,493	$	34,258	$	32,624	$	51,437	$	64,020
Risk rating 4		9,499		8,919		21,993		20,198		33,462		31,921
Risk rating 5		2,672		1,017		1,669		2,703		14,313		14,069
Risk rating 6		57		213		680		251		5,009		5,412
Risk rating 7		4		39		85		171		2,029		929
	$	38,929	$	29,681	$	58,685	$	55,947	$	106,250	$	116,351

Consumer Credit Exposure - Credit Risk Profile Based On Payment Activity

	Consumer				Construction Real Estate				Residential Real Estate
	2011		2010		2011		2010		2011		2010
Performing	$	18,634	$	16,519	$	1,169	$	853	$	95,732	$	92,885
Nonperforming		23		190		—		—		705		4,514
	$	18,657	$	16,709	$	1,169	$	853	$	96,437	$	97,399

The following schedule provides information on loans that were considered troubled debt restructurings ("TDRs") as of December 31, 2011 that were modified during the year ended December 31, 2011:

(Dollars in thousands)	Number of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial and industrial		1	$	48	$	48
Commercial real estate		7		1,789		1,789
Residential real estate		5		639		639
		13	$	2,476	$	2,476

The pre-modification and post-modification outstanding recorded investment represents amounts as of the date of loan modification. If a difference exists between the pre-modification and post-modification outstanding recorded investment, it represents impairment recognized through the provision for loan losses computed based on a loan's post-modification present value of expected future cash flows discounted at the loan's original effective interest rate. If no difference exists, a loss is not expected to be incurred based on an assessment of the borrower's expected cash flows.

The following schedule provides information on TDRs as of December 31, 2011 where the borrower was past due with respect to principal and/or interest for 30 days or more during the year ended December 31, 2011 that had been modified during the year prior to the default:

(Dollars in thousands)	Number of Loans		Recorded Investment
Commercial and industrial		1	$	48
Commercial real estate		3		1,135
Residential real estate		7		865
		11	$	2,048

Loans are classified as performing when they are current as to principal and interest payments or are past due on payments less than 90 days. Loans are classified as nonperforming when they are past due 90 days or more as to principal and interest payments or are considered a troubled debt restructuring.

Impaired loans by loan category as of December 31 follow:

(Dollars in thousands)

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
2011
With no related allowance recorded
Agricultural	$	—	$	—	$	—	$	45	$	—
Commercial and industrial		102		105		—		167		—
Commercial real estate		1,122		1,538		—		2,369		15
Residential real estate		1,580		1,580		—		1,620		50
Subtotal		2,804		3,223		—		4,201		65
With an allowance recorded
Agricultural		—		—		—		—		—
Commercial and industrial		61		63		7		85		—
Commercial real estate		1,636		2,120		424		1,490		6
Residential real estate		—		—		—		—		—
Subtotal		1,697		2,183		431		1,575		6
Total
Agricultural		—		—		—		45		—
Commercial and industrial		163		168		7		252		—
Commercial real estate		2,758		3,658		424		3,859		21
Residential real estate		1,580		1,580		—		1,620		50
Total	$	4,501	$	5,406	$	431	$	5,776	$	71
2010
With no related allowance recorded
Agricultural	$	39	$	44	$	—	$	165	$	—
Commercial and industrial		222		229		—		211		(5	)
Commercial real estate		1,914		2,385		—		1,951		(2	)
Residential real estate		2,733		2,736		—		2,640		170
Subtotal		4,908		5,394		—		4,967		163
With an allowance recorded
Agricultural		—		—		—		65		—
Commercial and industrial		50		50		50		464		12
Commercial real estate		1,615		1,672		531		3,591		(3	)
Residential real estate		—		—		—		—		—
Subtotal		1,665		1,722		581		4,120		9
Total
Agricultural		39		44		—		230		—
Commercial and industrial		272		279		50		675		7
Commercial real estate		3,529		4,057		531		5,542		(5	)
Residential real estate		2,733		2,736		—		2,640		170
Total	$	6,573	$	7,116	$	581	$	9,087	$	172

An aging analysis of loans by loan category as of December 31 follows:

(Dollars in thousands)

	30 to 59 Days (1)		60 to 89 Days (1)		Greater Than 90 Days (1)		Total (1)		Loans Not Past Due		Total Loans		90 Days Past Due and Accruing
2011
Agricultural	$	151	$	–	$	22	$	173	$	38,756	$	38,929	$	–
Commercial and industrial		541		143		97		781		57,904		58,685		–
Consumer		104		52		23		179		18,478		18,657		2
Commercial real estate		1,752		713		1,816		4,281		101,969		106,250		–
Construction real estate		–		–		–		–		1,169		1,169		–
Residential real estate		1,320		1,015		705		3,040		93,397		96,437		68
	$	3,868	$	1,923	$	2,663	$	8,454	$	311,673	$	320,127	$	70
2010
Agricultural	$	71	$	7	$	39	$	117	$	29,564	$	29,681	$	–
Commercial and industrial		133		175		142		450		55,497		55,947		–
Consumer		84		41		29		154		16,555		16,709		23
Commercial real estate		266		646		2,129		3,041		113,310		116,351		–
Construction real estate		–		–		–		–		853		853		–
Residential real estate		1,223		833		2,249		4,305		93,094		97,399		–
	$	1,777	$	1,702	$	4,588	$	8,067	$	308,873	$	316,940	$	23

(1) Includes nonaccrual loans.

Nonaccrual loans by loan category as of December 31 follow:

(Dollars in thousands)

	2011		2010
Agricultural	$	26	$	64
Commercial and industrial		143		256
Consumer		22		5
Commercial real estate		2,790		3,302
Construction real estate		–		–
Residential real estate		1,174		2,646
	$	4,155	$	6,273

XML

Off-Balance Sheet Activities

12 Months Ended

Dec. 31, 2011

Off-Balance Sheet Activities [Abstract]

Off-Balance Sheet Activities

Note 20 – Off-Balance Sheet Activities

Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customers' financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.

The contractual amount of financial instruments with off-balance sheet risk was as follows at December 31:

(Dollars in thousands)

	2011				2010
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Unused lines of credit and letters of credit	$	2,868	$	47,217	$	5,370	$	42,985
Commitments to fund loans (at market rates)		3,610		1,919		5,088		3,000

Commitments to fund loans are generally made for periods of 180 days or less. The fixed rate loan commitments have interest rates ranging from 3.63% to 7.25% and maturities ranging from 1 year to 30 years.

XML

Employee Benefit Plans

12 Months Ended

Dec. 31, 2011

Employee Benefit Plans [Abstract]

Employee Benefit Plans

Note 13 – Employee Benefit Plans

401(k) Plan:

The 401(k) plan allows employees to contribute up to the IRS maximum. Matching company contributions to the plan are discretionary. Expense of this plan was $115,000, $112,000, and $0 in 2011, 2010, and 2009, respectively.

Employee Stock Ownership Plan:

Employees participate in an Employee Stock Ownership Plan (the "ESOP"). ChoiceOne may make discretionary contributions to the ESOP. Shares of ChoiceOne common stock are allocated to participants based on relative compensation earned and compensation expense is recorded when allocated. Dividends on allocated shares increase the participant accounts. Participants become fully vested upon completing six years of qualifying service. Participants receive the shares at the end of employment. A participant may require stock received to be repurchased by ChoiceOne at any time. ChoiceOne did not contribute to the ESOP nor was any expense recorded in 2011, 2010, or 2009.

Shares held by the ESOP as of December 31 were as follows:

(Dollars in thousands)

	2011		2010		2009
Shares allocated to participants		5,355		5,355		5,355
Shares unallocated		–		–		–
Total shares of ChoiceOne stock held by ESOP		5,355		5,355		5,355
Fair value of allocated shares, subject to repurchase obligation, recorded in other liabilities	$	66	$	64	$	48

Post-retirement Benefits Plan:

ChoiceOne maintains an unfunded post-retirement health care plan, which permits employees (and their dependents) the ability to participate upon retirement from ChoiceOne. ChoiceOne does not pay any portion of the health care premiums charged to its retired participants. A liability has been accrued for the obligation under this plan. ChoiceOne incurred negative post-retirement benefit expense of $11,000 in 2011, $15,000 in 2010, and $17,000 in 2009. The post-retirement obligation liability was $131,000 as of December 31, 2011 and $119,000 as of December 31, 2010.

Deferred Compensation Plans:

A deferred director compensation plan covers former directors of Valley Ridge Bank, which was acquired by ChoiceOne in 2006. Under the plan, ChoiceOne pays each former director the amount of director fees deferred plus interest at rates ranging from 0.90% to 5.84% over various periods as elected by each director. The payout periods range from one month to ten years beginning with the individual's termination of service. A liability has been accrued for the obligation under this plan. ChoiceOne incurred deferred compensation plan expense of $17,000, $20,000, and $28,000 in 2011, 2010, and 2009, respectively. The deferred compensation liability was $287,000 as of December 31, 2011 and $357,000 as of December 31, 2010.

A supplemental retirement plan covers four former executive officers of Valley Ridge Bank. Under the plan, ChoiceOne pays these individuals a specific amount of compensation plus interest at 7.50% over a 15-year period commencing upon early retirement age (as defined in the plan) or normal retirement age (as defined in the plan). A liability has been accrued for the obligation under this plan. ChoiceOne incurred deferred compensation plan expense of $32,000 in 2011, $41,000 in 2010, and $76,000 in 2009. Deferred compensation liabilities of $715,000 and $751,000 were outstanding as of December 31, 2011 and December 31, 2010, respectively.