The region’s biggest banks say record low interest rates are hurting their main revenue source, forcing them to compete more for customers, look for cost savings and increase revenue from fees for services.

“Aside from regulatory issues, this is the biggest deal in banking right now,” said Frank Hall, chief financial officer of Cincinnati’s First Financial Bancorp. “It means that our revenue is declining potentially if we can’t offset it by more volume.”

First Financial reported Tuesday higher second quarter net income of $17.8 million.

The biggest income source for most banks is the difference in interest collected on loans and earned on investments, and the interest paid on deposits. Federal Reserve policies to stimulate the economy and foreign investment in U.S. Treasury bills are driving interest rates on mortgages, bonds and notes to historic lows, said bank officials.

Interest rates Thursday averaged 3.55 percent for a fixed 30-year mortgage, 0.14 percent for a six-month T-bill and 2.49 percent for a 30-year Treasury bond, all well below past levels, according to MarketWatch.

Wilmington’s National Bank and Trust Co. said July 17 it had second quarter net income of $1.2 million, compared to $1 million a year ago. President and CEO John Limbert commented, “The continued low interest rate environment and stagnant loan volume is impacting our margin. Fortunately, we have been able to reduce expenses approximately $900,000 over the comparable period of last year to partially offset the margin decrease.”

A key sign of what’s happening is the interest rate spread, which compares average interest rates earned from loans and assets and average interest rates paid to depositors.

The spread shrank over the past year in the second quarter for First Financial, JPMorgan Chase & Co., U.S. Bancorp, Park National Corp., LCNB and National Bank and Trust. It dropped from the first to second quarter at Fifth Third and KeyCorp. Only PNC Financial Services Group and Huntington Bancshares grew their interest rate spreads, according to analysis of bank financial reports. JPMorgan’s spread of 2.36 percent was the lowest and First Financial’s 4.32 percent the highest, according to financial statements.

Columbus-based Huntington increased its spread by growing volume — opening more checking accounts and originating more loans, said Mark Reitzes, Huntington’s local market president. Huntington reported July 19 higher year-over-year quarterly net income of $153 million. “Ultimately we’re trying to deepen our relationships with customers,” Reitzes said.

Cleveland’s KeyCorp announced plans July 19 with its earnings to cut costs by $150 to $200 million by December 2013. Key had lower quarterly net income of $221 million from continuing operations than a year ago.

In fact, all banks still reported profits the past two weeks, with U.S. Bank posting record earnings. But interest rates are expected to stay low through 2013 and 2014 and “prolonged low rates will present a challenge to maintaining current levels of profitability,” Hall said.