Regions Financial Corp. is giving itself more elbow room.

The Birmingham, Ala., regional bank is working on shutting 125 branches early next year. The branches to be closed represent about 6.6% of the bank’s 1,900 current branch network.

Regions operates in Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina, Tennessee, Texas and Virginia.

But Regions is not just shrinking its branch network. The bank has about 1 million square feet of non-branch office space that it is trying to shed over the next year.

Couple these real estate efforts with the bank’s drive to cut its legal fees for foreclosure proceedings and the like and the bank will find an expansion of its earnings — its “run rate,” in the bank’s parlance — by the end of 2010.

That’s where most of the earnings improvements are coming from these days: expense reduction.