While still subject to regulatory approval, the two companies agreed to merge and become one of Australia's largest customer-owned banking outfits.
After due diligence checks commenced in August, on Wednesday the two boardrooms agreed to merge the companies.
With a combined 1,800 employees, 720,000 members and assets worth more than $22.5 billion, the two would combine to become one of Australia's largest customer-owned banking institutions.
It would compete alongside the proposed merger of Greater Bank and Newcastle Permanent, which as of August had $19.8 billion in assets and 600,000 customers collectively.
The Heritage-People's Choice merger is still subject to member approval, with the vote put to members at the two banks' Annual General Meetings towards the end of 2022.
If given the green light, the new institution is expected to be established in early 2023.
The new company will retain Heritage's headquarters in Toowoomba, and People's Choice's in Adelaide as joint-headquarters.
The two banks pledged to close no branches, and there will be no staff redundancies below executive level.
Over the past 10 years, the number of mutual and customer-owned banks has reportedly halved, with fewer than 70 existing now.
People's Choice chairman Michael Cameron will be appointed chairman of the joint outfit, and Heritage chair Kerry Betros will be appointed as deputy chair.
CEO of Heritage Peter Lock will serve as CEO of the merged company, while People's Choice CEO Steve Laidlaw will serve as Deputy CEO.
The plan after 18 months is that Mr Lock will retire and Mr Laidlaw will be appointed as CEO.
Mr Lock believes the merger is in members' best interests.
"Joining forces represents a unique pairing of equals, offering unparalleled cultural and strategic alignment and an absolute commitment to mutuality," he said.
Mr Laidlaw said the merger will provide members "size and scale ... to deliver outstanding products and services".
Recently the competition regulator approved NAB's acqusition of Citi's retail banking assets.
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