<PAGE>   1
















                                  EXHIBIT 10.3



                        MIDWEST FEDERAL FINANCIAL CORP.

                      1997 NONQUALIFIED STOCK OPTION PLAN















<PAGE>   2


                        MIDWEST FEDERAL FINANCIAL CORP.
                        -------------------------------

                      1997 NONQUALIFIED STOCK OPTION PLAN
                      -----------------------------------


                               Table of Contents
                               -----------------

                                                                            Page
                                                                            ----


1.   Purpose................................................................  1

2.   Definitions............................................................  1

3.   Shares Available under the Plan........................................  2

4.   Stock Options..........................................................  2

5.   Transferability........................................................  3

6.   Change in Control......................................................  3

7.   Adjustments............................................................  4

8.   Fractional Shares......................................................  4

9.   Withholding Taxes......................................................  4

10.       Effect of Termination of Employment...............................  5

11.       Administration of the Plan........................................  6

12.       Amendments and Other Matters......................................  6

13.       Governing Law.....................................................  7




<PAGE>   3


                        MIDWEST FEDERAL FINANCIAL CORP.
                        -------------------------------

                      1997 NONQUALIFIED STOCK OPTION PLAN
                      -----------------------------------


    1.  Purpose.  The purpose of this Midwest Federal Financial Corp. 1997 
Nonqualified Stock Option Plan (the "Plan") is to attract and retain directors,
officers and other key employees of Midwest Federal Financial Corp. (the
"Corporation") and its Subsidiaries and to provide such persons with incentives
and rewards for superior performance.  The effective date of this Plan is
January 21, 1997.
        
    2.  Definitions. (a)  As used in this Plan:

    "Board" means the Board of Directors of the Corporation.

    "Code" means the Internal Revenue Code of 1986, as amended from time to
    time.

    "Committee" means a committee of not less than two "Non-Employee
Directors" (as defined in Rule 16b-3(b)(3)(i) under Section 16(b) of the
Exchange Act) appointed by and serving at the pleasure of the Board.

    "Common Shares" means (i) shares of the Common Stock, par value $.01 per
share, of the Corporation and (ii) any security into which Common Shares may be
converted by reason of any transaction or event of the type referred to in
Section 7 of this Plan.

    "Date of Grant" means the date specified by the Board on which a grant of
Stock Options shall become effective, which shall not be earlier than the date
on which the Board takes action with respect thereto.

    "Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.

    "Market Value per Share" means the fair market value of the Common Shares
as determined by the Board from time to time.

    "Nonqualified Option" means a Stock Option that is not intended to qualify
as a tax-qualified option under Section 422 of the Code.

    "Optionee" means the person so designated in an Option Agreement.

    "Option Agreement" means the written contract evidencing Stock Options
granted under this Plan.

    "Option Price" means the purchase price payable upon the exercise of a
Stock Option.

    "Participant" means a person who is selected by the Board to receive
benefits under this Plan and (i) is at that time a director or an officer
(including officers who are also directors) or other key employees of the
Corporation or any Subsidiary or (ii) has agreed to commence serving in any such
capacity.
        








                                    Page 1
<PAGE>   4


    "Stock Option" means the right to purchase Common Shares from the
Corporation upon the exercise of a Nonqualified Option granted pursuant to
Section 4 of this Plan.

    "Subsidiary" means a corporation, partnership, joint venture,
unincorporated association or other entity in which the Corporation has a
direct or indirect ownership or other equity interest.

    (b)   As used in this Plan, the terms "employed" and "employment" shall be
deemed to refer to service as a nonemployee director, as well as to a
traditional employment relationship, as the case may be.

     3.   Shares Available under the Plan. (a) Subject to adjustment as
provided in Section 7 of this Plan, the aggregate number of Common Shares
covered by outstanding Stock Options granted under this Plan and issued or
transferred upon the exercise or payment thereof shall not exceed 160,000.
Common Shares issued or transferred under this Plan may be Common Shares of
original issuance or Common Shares held in treasury or a combination thereof.

    (b)   For the purposes of this Section 3:

    (i)   Upon payment in cash of the benefit provided by any Stock Option
  granted under this Plan, any Common Shares that were covered by that award 
  shall again be available for issuance or transfer hereunder.

    (ii)  Common Shares covered by any Stock Option granted under this Plan 
  shall be deemed to have been issued or transferred, and shall cease to be
  available for future issuance or transfer in respect of any Stock Option
  granted hereunder, at the earlier of the time when they are actually issued or
  transferred or the time when dividends or dividend equivalents are paid       
  thereon.
        
    4.    Stock Options.  The Board may from time to time authorize grants to 
Participants of Stock Options upon such terms and conditions as the Board may
determine in accordance with the following provisions:
        
    (a)   Each grant shall specify the number of Common Shares to which it
  pertains.

    (b)   Each grant shall specify an Option Price per Common Share, which 
  shall be equal to or greater than the fair market value per share on the 
  Date of Grant.

    (c)   Each grant shall specify the form of consideration to be paid in
  satisfaction of the Option Price and the manner of payment of such
  consideration, which may include (i) cash in the form of currency or check or
  other cash equivalent acceptable to the Corporation, (ii) nonforfeitable,
  unrestricted Common Shares that are already owned by the optionee and have a
  value at the time of exercise that is equal to the Option Price, (iii) any
  other legal consideration that the Board may deem appropriate, on such basis
  as the Board may determine in accordance with this Plan and (iv) any
  combination of the foregoing.
        
    (d)   Any grant may provide for deferred payment of the Option Price from
  the proceeds of sale through a broker on the date of exercise of some or all
  of the Common Shares to which the exercise relates.
        





                                    Page 2

<PAGE>   5



    (e)   Successive grants may be made to the same Participant regardless of 
  whether any Stock Options previously granted to the Participant remain
  UNEXERCISED.
        
    (f)   Each grant may specify a period or periods of continuous employment 
  of the Optionee by the Corporation or any Subsidiary that are necessary before
  the Stock Options or installments thereof shall become exercisable.
        
    (g)   On or after the Date of Grant of any Stock Option, the Board may
  provide for the payment to the Optionee of dividend equivalents thereon in
  cash or Common Shares on a current, deferred or contingent basis, or the Board
  may provide that any dividend equivalents shall be credited against the Option
  Price.
        
    (h)   No Stock Option granted pursuant to this Section 4 may be exercised 
  more than 10 years from the Date of Grant.

    (i)   Each Stock Option shall be evidenced by a written agreement (the
  "Option Agreement") specifying the Option Price, the terms for payment of the
  Option Price, the duration of the Stock Option, and the number of shares of
  Common Stock to which the Stock Option pertains.  An Option Agreement also may
  contain an installment exercise schedule, a noncompetition agreement, a
  confidentiality provision, provisions for forfeiture in the event of
  termination of the Participant's employment with the Corporation or any of its
  subsidiaries, and such other restrictions, conditions and terms, as the
  Committee shall determine.  Option Agreements need not be identical.
        
    (j)   The Committee, in its discretion, shall have the power to accelerate
  the dates for exercise of any or all Stock Options, or any part thereof, 
  granted under the Plan.

    5.    Transferability.  (a)  Any grant of a Stock Option under this Plan 
  may permit the transfer thereof by the Participant upon such terms and 
  conditions as the Board shall specify.

    (b)   Any grant made under this Plan may provide that all or any part of the
Common Shares that are to be issued or transferred by the Corporation upon the
exercise of Stock Options shall be subject to further restrictions upon
transfer.

     6.   Change in Control.  (a) Notwithstanding any of the provisions of the
Plan or any Option Agreement, upon a Change in Control of the Corporation (as
defined in Section 6(b)) all outstanding Stock Options shall become fully
exercisable and all restrictions thereon shall terminate in order that Optionees
may fully realize the benefits thereunder.  Further, the Committee, as
constituted before such Change in Control, is authorized, and has sole
discretion, as to any Stock Option, either at the time such Option is granted
hereunder or any time thereafter, to take any one or more of the following
actions:  (i) provide for the purchase of any such Stock Option, upon the
Optionee's request, for an amount of cash equal to the difference between the
exercise price and the then fair market value of the Common Stock covered
thereby had such Stock Option been currently exercisable; (ii) make such
adjustment to any such Stock Option then outstanding as the Committee deems
appropriate to reflect such Change in Control; and (iii) cause any such Stock
Option then outstanding to be assumed, by the acquiring or surviving
corporation, after such Change in Control.
        

    (b)   The term "Change in Control" shall mean the occurrence, at any time
during





                                    Page 3
<PAGE>   6


the specified term of a Stock Option granted under this Plan, of any of
the following events:

    (i)   The Corporation  is merged or consolidated or reorganized into or 
  with another corporation or other legal person (an "Acquiror") and as a result
  of such merger, consolidation or reorganization less than 50% of the
  outstanding voting securities or other capital interests of the surviving,
  resulting or acquiring corporation or other person are owned in the aggregate
  by the shareholders of the Corporation, directly or indirectly, immediately
  prior to such merger, consolidation or reorganization, other than the Acquiror
  or any corporation or other person controlling, controlled by or under common
  control with the Acquiror;
        
    (ii)  The Corporation sells all or substantially all of its business and/or
  assets to an Acquiror, of which less than 50% of the outstanding voting
  securities or other capital interests are owned in the aggregate by the
  shareholders of the Corporation, directly or indirectly, immediately prior to
  such sale, other than the Acquiror or any corporation or other person
  controlling, controlled by or under common control with the Acquiror; or
        
    (iii) The election to the Board, without the recommendation or approval of 
  the incumbent Board, of the lesser of (i) three Directors or (ii) Directors
  constituting a majority of the number of Directors of the Corporation then in
  office.
        
    7. Adjustments.  The Board may make or provide for such adjustments in the 
number of Common Shares covered by outstanding Stock Options granted hereunder,
the Option Prices per Common Share applicable to any such Stock Options, and the
kind of shares (including shares of another issuer) covered thereby, as the
Board may in good faith determine to be equitably required in order to prevent
dilution or expansion of the rights of Participants that otherwise would result
from (a) any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Corporation or
(b) any merger, consolidation, spin-off, spin-out, split-off, split-up,
reorganization, partial or complete liquidation or other distribution of assets,
issuance of warrants or other rights to purchase securities or any other
corporate transaction or event having an effect similar to any of the
foregoing.  In the event of any such transaction or event, the Board may
provide in substitution for any or all outstanding Stock Options under this
Plan such alternative consideration as it may in good faith determine to be
equitable under the circumstances and may require in connection therewith the
surrender of all Stock Options so replaced.  Moreover, the Board may on or
after the Date of Grant provide in the Option Agreement  that the holder of the
award may elect to receive an equivalent award in respect of securities of the
surviving entity of any merger, consolidation or other transaction or event
having a similar effect, or the Board may provide that the holder will
automatically be entitled to receive such an equivalent award.  The Board may
also make or provide for such adjustments in the maximum number of Common
Shares specified in Section 3(a) of this Plan as the Board may in good faith
determine to be appropriate in order to reflect any transaction or event
described in this Section 7.
        

     8.  Fractional Shares.  The Corporation shall not be required to issue 
any fractional Common Shares pursuant to this Plan.  The Board may provide for 
the elimination of fractions or for the settlement thereof in cash.

     9.  Withholding Taxes.  To the extent that the Corporation is required to 
withhold federal, state, local or foreign taxes in connection with any payment
made or
        





                                    Page 4
<PAGE>   7


benefit realized by a Participant or other person under this Plan, and the
amounts available to the Corporation for the withholding are insufficient, it
shall be a condition to the receipt of any such payment or the realization of
any such benefit that the Participant or such other person make arrangements
satisfactory to the Corporation for payment of the balance of any taxes required
to be withheld.  At the discretion of the Board, any such arrangements may
include relinquishment of a portion of any such payment or benefit.  The
Corporation and any Participant or such other person may also make similar
arrangements with respect to the payment of any taxes with respect to which
withholding is not required.
        
     10.  Effect of Termination of Employment.  (a)  Except as provided in 
Sections 6, 10(b), or by the Committee, in its sole discretion, any unvested
Stock Option held by an optionee whose employment with the Corporation and its
subsidiaries or service on the Board is terminated for any reason, shall
terminate on the date of termination of employment or service on the Board.
        
     (b)  Notwithstanding any other provision of this Plan to the contrary, in
the event of termination of employment by reason of death, disability, normal
retirement, early retirement with the consent of the Corporation, termination
of employment to enter public service with the consent of the Corporation or
leave of absence approved by the Corporation, or in the event of hardship or
other special circumstances, of a Participant who holds a Stock Option that is
not immediately and fully exercisable, all Stock Options held by such optionee
shall become immediately exercisable.  Furthermore, in connection with the
circumstances set forth in this paragraph (b) the Committee may take any action
that it deems to be equitable under the circumstances or in the best interests
of the Corporation, including without limitation waiving or modifying any
limitation or requirement with respect to any award under this Plan.  For
purposes of this Section 10(b), "disability" shall mean the inability of an
individual to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which is expected to
result in death or which has lasted or can be expected to last for a continuous
period not less than twelve (12) months.  The Committee, in its sole
discretion, shall determine the date of any disability.

     (c)  Unless exercised, a Participant's vested Stock Options shall terminate
and expire 90 days from the date the Participant's employment terminates for any
reason.  Stock Options, including, without limitation, vested Stock Options,
shall terminate if the Participant's employment is terminated for cause.  A
Participant's employment shall be deemed terminated for cause if, and only if,
the Participant has: (i) wilfully neglected any material duties of Participant's
employment or has performed such duties in a grossly incompetent manner; (ii)
engaged in wilful misconduct in the performance of his duties as an employee
including, but without limiting the generality of the foregoing, 
misappropriation of funds or property of the Corporation or securing or
attempting to secure personally any profit in connection with any transaction
entered into, or proposed to be entered into, by the Corporation; (iii) engaged
in conduct which could result in prejudice to the interests of the Corporation
if he were retained in his position with the Corporation; or (iv) violated the
terms of any non-competition agreement or confidentiality agreement at any time
executed by Participant for the benefit of the Corporation.
        
     (d)  Stock Options are granted to a Participant in order to induce the
Participant to become or continue as an employee or director of the
Corporation.  Upon the termination of Participant's employment for any reason
or service as a director (including, without limitation, death, disability,
resignation, retirement, or at the election of the Corporation), the
Corporation shall have the option (the "Corporation Option"), exercisable by
written notice






                                    Page 5
<PAGE>   8


to Participant within 180 days after such termination of employment or service
as a director, to purchase all shares of Common Stock owned by a Participant as
a result of his exercise of Stock Options ("Owned Shares") and to terminate all
vested stock options not terminated pursuant to this Section 10.  If the
Corporation exercises the Corporation Option, it shall pay Participant on or
before the Settlement Date (as hereinafter defined) an amount equal to : (A) the
product of (i) the sum of all underlying shares covered by vested Stock Options
and all Owned Shares, times (ii) the average closing sales price for a share of
Common Stock as reported on The Nasdaq Stock Market for the period ended twenty
(20) days prior to termination of employment, minus (B) the Option Price of
underlying shares not paid by Participant.  On the Settlement Date, Participant
shall deliver to the Corporation any Owned Shares being purchased by the
Corporation pursuant to such exercise concurrently with payment for such Owned
Shares by the Corporation.  The "Settlement Date" shall be within thirty (30)
days after the Corporation exercises the Corporation Option.
        
     11.  Administration of the Plan. (a)  This Plan shall be administered by 
the Board, which may delegate any or all of its authority hereunder to the
Committee.  To the extent of any such delegation, references in this Plan to the
Board shall be deemed to refer to the Committee, unless the context requires
otherwise.  A majority of the Board shall constitute a quorum, and the acts of
the members of the Board who are present at any meeting thereof at which a
quorum is present, or acts unanimously approved by the members of the Board in
writing, shall be the acts of the Board.  Subject to the express provisions of
the Plan, the Committee may interpret the Plan, prescribe, amend and rescind
rules and regulations relating to it, determine Stock Option grants and the
terms and provisions of Participants' Option Agreements (which need not be
identical), and make such other determinations as it deems necessary or
advisable for the administration of the Plan.
        
     (b)  The interpretation and construction by the Board of any provision of
this Plan or any agreement, notification or document evidencing the grant of
Stock Options and any determination by the Board pursuant to any provision of
this Plan or any such agreement, notification or document, shall be final and
conclusive.  No member of the Board shall be liable for any such action taken
or determination made in good faith.

     12.  Amendment and Other Matters. (a)   This Plan may be amended from time
to time by the Board without the approval of the Corporation's shareholders,
unless applicable law or the rules of The Nasdaq Stock Market or stock exchange
on which the Corporation's stock is listed or quoted requires shareholder
approval.
        
     (b)  With the concurrence of the affected Participant, the Board may cancel
any agreement evidencing Stock Options granted under this Plan.  In the event
of any such cancellation, the Board may authorize the granting of new Stock
Options, which may or may not cover the same number of Common Shares as had 
been covered by the canceled Stock Options, at such Option Price, in such manner
and subject to such other terms, conditions and discretion as would have been
permitted under this Plan had the canceled Stock Options not been granted.
        
     (c)  The Board may grant under this Plan any Stock Option authorized under
this Plan in exchange for the surrender and cancellation of an award that was
not granted under this Plan, including but not limited to an award that was
granted by the Corporation or a Subsidiary, or by another corporation that is
acquired by the Corporation or a Subsidiary by merger or otherwise, prior to
the adoption of this Plan by the Board, and any such award or combination of
awards so granted under this Plan may or may not cover the same number of












                                    Page 6
<PAGE>   9

Common Shares as had been covered by the canceled award and shall be subject to
such other terms, conditions and discretion as would have been permitted under
this Plan had the canceled award not been granted.

     (d)  This Plan shall not confer upon any Participant any right with respect
to continuance of employment with the Corporation or any Subsidiary and shall
not interfere in any way with any right that the Corporation or any Subsidiary
would otherwise have to terminate any Participant's employment at any time.

     13.  Governing Law.  The Plan, and all Option Agreements hereunder, shall 
be construed in accordance with and governed by the laws of the State of 
Wisconsin.












                                    Page 7