UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-Q



| |  | [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
      15(d) OF THE SECURITIESEXCHANGE ACT OF 1934
| |  | --- | --------------------------------------------------------------------------------------------

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004

OR



| |  | [   ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR
      15(d) OF THE SECURITIESEXCHANGE ACT OF 1934
| |  | ----- | ---------------------------------------------------------------------------------------------

FOR THE TRANSITION PERIOD FROM __________________
TO __________________

COMMISSION FILE NUMBER 000-26497

SALEM COMMUNICATIONS CORPORATION(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)



|                                                                                    |  |                                                 
|----------------------------------------------------------------------------------- |  | ------------------------------------------------
|DELAWARE(STATE OR
      OTHER JURISDICTION OFINCORPORATION OR ORGANIZATION)         |  | 77-0121400(I.R.S. EMPLOYERIDENTIFICATION NUMBER)
|4880 SANTA ROSA ROAD
CAMARILLO, CALIFORNIA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) |  | 93012(ZIP CODE)                                 

REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE: (805) 987-0400

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 [   ]



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Indicate by check mark
whether the registrant is an accelerated filer (as defined in Exchange Act Rule
12b-2). YES [X] NO [   ]

As of August 3, 2004,
there were 20,369,392 shares of Class A common stock and 5,553,696 shares of
Class B common stock of Salem Communications Corporation outstanding.







SALEM COMMUNICATIONS CORPORATIONINDEX

|                               |                                                                                               |  |          |    | 
|------------------------------ | --------------------------------------------------------------------------------------------- |  | -------- | -- | 
|                               |                                                                                               |  | PAGE NO.
|                               |                                                                                               |  |         
|COVER PAGE                     |                                                                                               |  | 1        |   
|INDEX                          |                                                                                               |  | 2        |   
|PART I - FINANCIAL INFORMATION |                                                                                               |  | 4        |   
|                               | Item 1. Financial Statements                                                                  |  |          | 4  | 
|                               | Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations |  |          | 19 | 
|                               | Item 3. Quantitative and Qualitative Disclosures About Market
      Risk                      |  |          | 30 | 
|                               | Item 4. Controls and Procedures                                                               |  |          | 31 | 
|PART II - OTHER INFORMATION    |                                                                                               |  | 32       |   
|                               | Item 1. Legal Proceedings                                                                     |  |          | 32 | 
|                               | Item 2. Changes In Securities, Use of
    Proceeds and Issuer Purchases of Equity Securities  |  |          | 32 | 
|                               | Item 3. Defaults Upon Senior Securities                                                       |  |          | 32 | 
|                               | Item 4. Submission of Matters to a Vote of Security
      Holders                             |  |          | 32 | 
|                               | Item 5. Other Information                                                                     |  |          | 32 | 
|                               | Item 6. Exhibits and Reports on Form 8-K                                                      |  |          | 33 | 
|SIGNATURES                     |                                                                                               |  | 36       |   
|EXHIBIT INDEX                  |                                                                                               |  | 37       |   

2



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SPECIAL CAUTIONARY NOTICE REGARDING FORWARDLOOKING STATEMENTS

From time to time, in both
written reports (such as this report) and oral statements, Salem Communications
Corporation (Salem or the company, including references to Salem by we,
us and our) makes forward-looking statements within the meaning of federal
and state securities laws. Disclosures that use words such as the company
believes, anticipates, expects, intends, will,
may or plans and similar expressions
are intended to identify forward-looking statements, as defined under the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements reflect the companys current expectations and are based upon data
available to the company at the time the statements are made. Such statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from expectations. These risks as well as other risks and uncertainties are detailed from time to
time in Salems reports on Forms 10-K, 10-Q and 8-K filed with the Securities
and Exchange Commission (the SEC). Forward-looking statements made in this
report speak as of the date hereof. The company undertakes no obligation to
update or revise any forward-looking statements made in this report. Any such
forward-looking statements, whether made in this report or elsewhere, should be
considered in context with the various disclosures made by Salem about its
business. These projections or forward-looking statements fall under the safe
harbors of Section 27A of the Securities Act of 1933, as amended (the
Securities Act), and Section 21E of the Securities Exchange Act of 1934,
as amended (the Exchange Act).

3



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PART I - FINANCIAL INFORMATION

SALEM COMMUNICATIONS CORPORATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)







4



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SALEM COMMUNICATIONS CORPORATIONCONDENSED CONSOLIDATED
BALANCE SHEETS(IN THOUSANDS, EXCEPT SHARE DATA)

|                                                                                                    |                                                                                                                                                                                         |                                      |         |              |  |             |         |         |  | 
|--------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------ | ------- | ------------ |  | ----------- | ------- | ------- |  | 
|                                                                                                    |                                                                                                                                                                                         |                                      |         | December 31, |  | June 30,   
|                                                                                                    |                                                                                                                                                                                         |                                      |         | 2003         |  | 2004       
|                                                                                                    |                                                                                                                                                                                         |                                      |         |              |  |            
|                                                                                                    |                                                                                                                                                                                         |                                      |         | (Note 1)     |  | (Unaudited)
|                                                                                                    |                                                                                                                                                                                         | ASSETS                               |         |              |  |             |         |         |  | 
|Current assets:                                                                                    
|                                                                                                    | Cash and cash equivalents                                                                                                                                                               |                                      | $       | 5,620        |  |             | $       | 12,894  | 
|                                                                                                    | Accounts
      receivable (less allowance for doubtful accounts of $9,423 in 2003 and
      $8,389 in 2004)                                                                             |                                      |         | 31,509       |  |             |         | 30,958  | 
|                                                                                                    | Other receivables                                                                                                                                                                       |                                      |         | 3,071        |  |             |         | 2,289   | 
|                                                                                                    | Prepaid expenses                                                                                                                                                                        |                                      |         | 1,747        |  |             |         | 1,847   | 
|                                                                                                    | Due from stockholders                                                                                                                                                                   |                                      |         | 83           |  |             |         |        | 
|                                                                                                    | Deferred income taxes                                                                                                                                                                   |                                      |         | 4,754        |  |             |         | 4,316   | 
|                                                                                                    |                                                                                                                                                                                         |                                      |         |              |  |             |         |        
|Total current assets                                                                                |                                                                                                                                                                                         |                                      | 46,784  |              |  |             | 52,304  |        
|Property,
      plant and equipment, net                                                            |                                                                                                                                                                                         |                                      | 97,393  |              |  |             | 101,762 |        
|Broadcast licenses                                                                                  |                                                                                                                                                                                         |                                      | 381,740 |              |  |             | 397,292 |        
|Goodwill                                                                                            |                                                                                                                                                                                         |                                      | 11,129  |              |  |             | 11,129  |        
|Amortizable
intangible assets, net of accumulated amortization of $4,736 in 2003 and $5,501 in 2004 |                                                                                                                                                                                         |                                      | 4,262   |              |  |             | 3,500   |        
|Bond issue costs                                                                                    |                                                                                                                                                                                         |                                      | 5,631   |              |  |             | 3,660   |        
|Bank loan fees                                                                                      |                                                                                                                                                                                         |                                      | 3,988   |              |  |             | 3,916   |        
|Fair value
      of interest rate swap                                                              |                                                                                                                                                                                         |                                      | 6,045   |              |  |             | 3,363   |        
|Other assets                                                                                        |                                                                                                                                                                                         |                                      | 3,039   |              |  |             | 2,981   |        
|                                                                                                    |                                                                                                                                                                                         |                                      |         |              |  |             |         |        
|Total assets                                                                                        |                                                                                                                                                                                         | $                                    | 560,011 |              |  | $           | 579,907 |        
|                                                                                                    |                                                                                                                                                                                         |                                      |         |              |  |             |         |        
|                                                                                                    |                                                                                                                                                                                         | LIABILITIES AND STOCKHOLDERS EQUITY |         |              |  |             |         |         |  | 
|Current liabilities:                                                                               
|                                                                                                    | Accounts payable                                                                                                                                                                        |                                      | $       | 535          |  |             | $       | 460     | 
|                                                                                                    | Accrued expenses                                                                                                                                                                        |                                      |         | 5,454        |  |             |         | 6,325   | 
|                                                                                                    | Accrued
      compensation and related expenses                                                                                                                                         |                                      |         | 4,661        |  |             |         | 5,022   | 
|                                                                                                    | Accrued interest                                                                                                                                                                        |                                      |         | 7,127        |  |             |         | 5,444   | 
|                                                                                                    | Deferred revenue                                                                                                                                                                        |                                      |         | 1,163        |  |             |         | 1,197   | 
|                                                                                                    | Income taxes payable                                                                                                                                                                    |                                      |         |             |  |             |         | 6       | 
|                                                                                                    | Current
      portion of long-term debt and capital lease obligations                                                                                                                   |                                      |         | 15           |  |             |         | 15      | 
|                                                                                                    |                                                                                                                                                                                         |                                      |         |              |  |             |         |        
|Total current liabilities                                                                           |                                                                                                                                                                                         |                                      | 18,955  |              |  |             | 18,469  |        
|Long-term
      debt and capital lease obligations, less current portion                            |                                                                                                                                                                                         |                                      | 330,046 |              |  |             | 284,408 |        
|Fair value
      in excess of book value of debt hedged with interest rate swap                     |                                                                                                                                                                                         |                                      | 6,045   |              |  |             | 3,363   |        
|Deferred income taxes                                                                               |                                                                                                                                                                                         |                                      | 28,999  |              |  |             | 28,725  |        
|Deferred revenue                                                                                    |                                                                                                                                                                                         |                                      | 3,472   |              |  |             | 3,455   |        
|Other liabilities                                                                                   |                                                                                                                                                                                         |                                      | 672     |              |  |             | 877     |        
|                                                                                                    |                                                                                                                                                                                         |                                      |         |              |  |             |         |        
|Total liabilities                                                                                   |                                                                                                                                                                                         |                                      | 388,189 |              |  |             | 339,297 |        
|                                                                                                    |                                                                                                                                                                                         |                                      |         |              |  |             |         |        
|Commitments and contingencies                                                                      
|Stockholders equity:                                                                              
|                                                                                                    | Class A
common stock, $0.01 par value; authorized 80,000,000 shares; issued and outstanding 17,956,567 and 20,369,392 shares at
      December 31, 2003 and June 30, 2004, respectively |                                      |         | 180          |  |             |         | 204     | 
|                                                                                                    | Class B common stock, $0.01 par value; authorized 20,000,000
      shares; issued and outstanding 5,553,696 shares                                                                      |                                      |         | 56           |  |             |         | 56      | 
|                                                                                                    | Additional paid-in capital                                                                                                                                                              |                                      |         | 148,538      |  |             |         | 216,222 | 
|                                                                                                    | Retained earnings                                                                                                                                                                       |                                      |         | 23,048       |  |             |         | 24,128  |  | 
|                                                                                                    |                                                                                                                                                                                         |                                      |         |              |  |             |         |        
|Total stockholders equity                                                                          |                                                                                                                                                                                         |                                      | 171,822 |              |  |             | 240,610 |        
|                                                                                                    |                                                                                                                                                                                         |                                      |         |              |  |             |         |        
|Total
      liabilities and stockholders equity                                                    |                                                                                                                                                                                         | $                                    | 560,011 |              |  | $           | 579,907 |        
|                                                                                                    |                                                                                                                                                                                         |                                      |         |              |  |             |         |        

See accompanying notes

5



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SALEM COMMUNICATIONS CORPORATIONCONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)(UNAUDITED)

|                                                          |                                                                                                                                                                                                                                                                                                           |   |                          |        |                        |   |            |        |      |   |            |         |   |   |            |         |  
|--------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------------------ | ------ | ---------------------- | - | ---------- | ------ | ---- | - | ---------- | ------- | - | - | ---------- | ------- | -
|                                                          |                                                                                                                                                                                                                                                                                                           |   | Three Months
      Ended |        | Six Months
      Ended
|                                                          |                                                                                                                                                                                                                                                                                                           |   | June 30,                 |        | June 30,              
|                                                          |                                                                                                                                                                                                                                                                                                           |   |                          |        |                       
|                                                          |                                                                                                                                                                                                                                                                                                           |   | 2003                     |        | 2004                   |   | 2003       |        | 2004
|                                                          |                                                                                                                                                                                                                                                                                                           |   |                          |        |                        |   |            |        |     
|Net
      broadcasting revenue                            |                                                                                                                                                                                                                                                                                                           | $ | 43,428                   |        |                        | $ | 47,800     |        |      | $ | 82,134     |         |   | $ | 90,957     |        
|Other
      media revenue                                 |                                                                                                                                                                                                                                                                                                           |   | 2,234                    |        |                        |   | 2,352      |        |      |   | 4,155      |         |   |   | 4,298      |        
|                                                          |                                                                                                                                                                                                                                                                                                           |   |                          |        |                        |   |            |        |      |   |            |         |   |   |           
|Total
      revenue                                       |                                                                                                                                                                                                                                                                                                           |   | 45,662                   |        |                        |   | 50,152     |        |      |   | 86,289     |         |   |   | 95,255     |        
|Operating
      expenses:                                
|                                                          | Broadcasting operating expenses, exclusive of depreciation and
      amortization shown below (including $220 and $270 for the quarters ended
      June 30, 2003 and 2004, respectively, and $500 and $543 for the six months
      ended June 30, 2003 and 2004, respectively, paid to related parties) |   |                          | 27,505 |                        |   |            | 28,875 |      |   |            | 53,843  |   |   |            | 56,419  |  
|                                                          | Costs of
      denied tower site and license upgrade                                                                                                                                                                                                                                                      |   |                          |       |                        |   |            |       |      |   |            | 2,202   |   |   |            |        |  
|                                                          | Other
      media operating expenses, exclusive of depreciation and amortization shown
      below                                                                                                                                                                                                        |   |                          | 2,116  |                        |   |            | 2,030  |      |   |            | 3,976   |   |   |            | 4,192   |  
|                                                          | Corporate
      expenses, exclusive of depreciation and amortization shown below
      (including $31 and $44 for the quarters ended June 30, 2003 and 2004,
      respectively, and $181 and $124 for the six months ended June 30, 2003
      and 2004, respectively, paid to related parties)          |   |                          | 4,027  |                        |   |            | 4,247  |      |   |            | 8,071   |   |   |            | 8,551   |  
|                                                          | Depreciation and amortization (including $289 and $261 for the
      quarters ended June 30, 2003 and 2004, respectively, and $581 and $529 for
      the six months ended June 30, 2003 and 2004, respectively, for other media
      businesses)                                                        |   |                          | 3,070  |                        |   |            | 3,129  |      |   |            | 6,095   |   |   |            | 6,226   |  
|                                                          |                                                                                                                                                                                                                                                                                                           |   |                          |        |                        |   |            |        |      |   |            |         |   |   |           
|Total
      operating expenses                            |                                                                                                                                                                                                                                                                                                           |   | 36,718                   |        |                        |   | 38,281     |        |      |   | 74,187     |         |   |   | 75,388     |        
|                                                          |                                                                                                                                                                                                                                                                                                           |   |                          |        |                        |   |            |        |      |   |            |         |   |   |           
|Operating
      income                                    |                                                                                                                                                                                                                                                                                                           |   | 8,944                    |        |                        |   | 11,871     |        |      |   | 12,102     |         |   |   | 19,867     |        
|Other
      income (expense):                             |                                                                                                                                                                                                                                                                                                           |   |                          |        |                        |   |            |        |      |   |            |         |   |   |            |        
|                                                          | Interest
      income                                                                                                                                                                                                                                                                                     |   |                          | 17     |                        |   |            | 93     |      |   |            | 171     |   |   |            | 122     |  
|                                                          | Interest
      expense                                                                                                                                                                                                                                                                                    |   |                          | (5,600 | )                      |   |            | (5,366 | )    |   |            | (12,236 | ) |   |            | (11,036 | )
|                                                          | Loss on
      early redemption of long-term debt                                                                                                                                                                                                                                                          |   |                          |       |                        |   |            | (6,588 | )    |   |            | (6,440  | ) |   |            | (6,588  | )
|                                                          | Gain on
      sale of assets                                                                                                                                                                                                                                                                              |   |                          |       |                        |   |            | 405    |      |   |            |        |   |   |            | 181     |  
|                                                          | Other
      expense, net                                                                                                                                                                                                                                                                                  |   |                          | (92    | )                      |   |            | (126   | )    |   |            | (161    | ) |   |            | (237    | )
|                                                          |                                                                                                                                                                                                                                                                                                           |   |                          |        |                        |   |            |        |      |   |            |         |   |   |           
|Income
      (loss) before income taxes                   |                                                                                                                                                                                                                                                                                                           |   | 3,269                    |        |                        |   | 289        |        |      |   | (6,564     | )       |   |   | 2,309      |        
|Provision
      (benefit) for income taxes                |                                                                                                                                                                                                                                                                                                           |   | 1,427                    |        |                        |   | 117        |        |      |   | (2,318     | )       |   |   | 894        |        
|                                                          |                                                                                                                                                                                                                                                                                                           |   |                          |        |                        |   |            |        |      |   |            |         |   |   |           
|Income (loss) before discontinued operations              |                                                                                                                                                                                                                                                                                                           |   | 1,842                    |        |                        |   | 172        |        |      |   | (4,246     | )       |   |   | 1,415      |        
|Discontinued operations, net of tax                       |                                                                                                                                                                                                                                                                                                           |   |                         |        |                        |   | (335       | )      |      |   |           |         |   |   | (335       | )      
|                                                          |                                                                                                                                                                                                                                                                                                           |   |                          |        |                        |   |            |        |      |   |            |         |   |   |           
|Net income (loss)                                         |                                                                                                                                                                                                                                                                                                           | $ | 1,842                    |        |                        | $ | (163       | )      |      | $ | (4,246     | )       |   | $ | 1,080      |        
|                                                          |                                                                                                                                                                                                                                                                                                           |   |                          |        |                        |   |            |        |      |   |            |         |   |   |            |         |  
|Basic earnings per share before discontinued operations   |                                                                                                                                                                                                                                                                                                           | $ | 0.08                     |        |                        | $ | 0.01       |        |      | $ | (0.18      | )       |   | $ | 0.06       |        
|Income (loss) from discontinued operations per share      |                                                                                                                                                                                                                                                                                                           |   |                         |        |                        |   | (0.01      | )      |      |   |           |         |   |   | (0.01      | )      
|Basic net earnings per share                              |                                                                                                                                                                                                                                                                                                           |   | 0.08                     |        |                        |   | (0.01      | )      |      |   | (0.18      | )       |   |   | 0.04       |        
|                                                          |                                                                                                                                                                                                                                                                                                           |   |                          |        |                        |   |            |        |      |   |            |         |   |   |            |         |  
|Diluted earnings per share before discontinued operations |                                                                                                                                                                                                                                                                                                           | $ | 0.08                     |        |                        | $ | 0.01       |        |      | $ | (0.18      | )       |   | $ | 0.06       |        
|Income (loss) from discontinued operations per share      |                                                                                                                                                                                                                                                                                                           |   |                         |        |                        |   | (0.01      | )      |      |   |           |         |   |   | (0.01      | )      
|Diluted net earnings per share                            |                                                                                                                                                                                                                                                                                                           |   | 0.08                     |        |                        |   | (0.01      | )      |      |   | (0.18      | )       |   |   | 0.04       |        
|                                                          |                                                                                                                                                                                                                                                                                                           |   |                          |        |                        |   |            |        |      |   |            |         |   |   |            |         |  
|Basic
      weighted average shares outstanding           |                                                                                                                                                                                                                                                                                                           |   | 23,485,522               |        |                        |   | 25,205,348 |        |      |   | 23,484,817 |         |   |   | 24,365,727 |        
|                                                          |                                                                                                                                                                                                                                                                                                           |   |                          |        |                        |   |            |        |      |   |            |         |   |   |            |         |  
|Diluted
      weighted average shares outstanding         |                                                                                                                                                                                                                                                                                                           |   | 23,573,321               |        |                        |   | 25,412,122 |        |      |   | 23,484,817 |         |   |   | 24,545,123 |        
|                                                          |                                                                                                                                                                                                                                                                                                           |   |                          |        |                        |   |            |        |      |   |            |         |   |   |            |         |  

See accompanying notes

6



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SALEM COMMUNICATIONS CORPORATIONCONSOLIDATED
STATEMENTS OF CASH FLOWS(IN THOUSANDS)(UNAUDITED)

|                                                                                        |                                                     |                                                 |         |                        |        |      |         |       |        |  
|--------------------------------------------------------------------------------------- | --------------------------------------------------- | ----------------------------------------------- | ------- | ---------------------- | ------ | ---- | ------- | ----- | ------ | -
|                                                                                        |                                                     |                                                 |         | Six Months
      Ended
|                                                                                        |                                                     |                                                 |         | June
30,              
|                                                                                        |                                                     |                                                 |         |                       
|                                                                                        |                                                     |                                                 |         | 2003                   |        | 2004
|                                                                                        |                                                     |                                                 |         |                        |        |     
|OPERATING ACTIVITIES                                                                    |                                                     |                                                 |         |                        |        |      |         |      
|Net income (loss)                                                                       |                                                     | $                                               | (4,246  | )                      |        | $    | 1,080   |      
|Adjustments to reconcile net income to net cash provided by
      operating activities: |                                                     |                                                 |         |                        |        |      |         |      
|                                                                                        | Loss on
      early retirement of debt              |                                                 |         | 6,440                  |        |      |         | 6,588 |       
|                                                                                        | Cost of
      denied tower site and license upgrade |                                                 |         | 2,202                  |        |      |         |     
|                                                                                        | Tax benefit related to stock options exercised      |                                                 |         |                       |        |      |         | 333  
|                                                                                        | Depreciation and amortization                       |                                                 |         | 6,095                  |        |      |         | 6,226
|                                                                                        | Amortization of bond issue costs and bank loan fees |                                                 |         | 769                    |        |      |         | 950   |       
|                                                                                        | Provision
      for bad debts                       |                                                 |         | 2,618                  |        |      |         | 1,796 |       
|                                                                                        | Deferred income taxes                               |                                                 |         | (2,642                 | )      |      |         | 164   |       
|                                                                                        | Gain on
      sale of assets                        |                                                 |         |                       |        |      |         | (181  | )     
|                                                                                        | Changes in
      operating assets and liabilities: 
|                                                                                        |                                                     | Accounts
      receivable                       |         |                        | (2,793 | )    |         |       | (1,245 | )
|                                                                                        |                                                     | Prepaid
      expenses and other current assets |         |                        | (665   | )    |         |       | 765    |  
|                                                                                        |                                                     | Accounts
      payable and accrued expenses     |         |                        | 468    |      |         |       | (526   | )
|                                                                                        |                                                     | Deferred
      revenue                          |         |                        | 2,648  |      |         |       | 17     |  
|                                                                                        |                                                     | Other liabilities                               |         |                        | (186   | )    |         |       | 205    |  
|                                                                                        |                                                     | Income
      taxes payable                      |         |                        | (580   | )    |         |       | 6      |  
|                                                                                        |                                                     |                                                 |         |                        |        |      |        
|Net cash
      provided by operating activities                                         |                                                     |                                                 | 10,128  |                        |        |      | 16,178  |      
|                                                                                       
|INVESTING ACTIVITIES                                                                   
|Capital
      expenditures                                                              |                                                     |                                                 | (3,109  | )                      |        |      | (8,664  | )    
|Deposits
      on radio station acquisitions                                            |                                                     |                                                 |        |                        |        |      | (685    | )    
|Purchases
      of radio stations                                                       |                                                     |                                                 | (241    | )                      |        |      | (16,913 | )    
|Other
      assets                                                                      |                                                     |                                                 | (1,732  | )                      |        |      | 122     |      
|                                                                                        |                                                     |                                                 |         |                        |        |      |        
|Net cash
      used in investing activities                                             |                                                     |                                                 | (5,082  | )                      |        |      | (26,140 | )    
|                                                                                       
|FINANCING ACTIVITIES                                                                   
|Proceeds
      from issuance of long-term debt and notes payable                        |                                                     |                                                 | 3,000   |                        |        |      | 22,500  |      
|Proceeds from common stock offering                                                     |                                                     |                                                 |        |                        |        |      | 65,738  |      
|Payments to redeem 9% Notes                                                             |                                                     |                                                 |        |                        |        |      | (55,630 | )    
|Payment of bond premium                                                                 |                                                     |                                                 |        |                        |        |      | (4,998  | )    
|Payments
      of long-term debt and notes payable                                      |                                                     |                                                 | (30,000 | )                      |        |      | (12,500 | )    
|Proceeds
      from exercise of stock options                                           |                                                     |                                                 | 50      |                        |        |      | 1,637   |      
|Payments
      on capital lease obligations                                             |                                                     |                                                 | (15     | )                      |        |      | (8      | )    
|Payments
      of costs related to bank credit facility and debt refinancing            |                                                     |                                                 | (190    | )                      |        |      | 497     |      
|Payments
      of bond issue costs                                                      |                                                     |                                                 | (223    | )                      |        |      |        |      
|                                                                                        |                                                     |                                                 |         |                        |        |      |        
|Net cash
      used in financing activities                                             |                                                     |                                                 | (27,378 | )                      |        |      | 17,236  |      
|                                                                                        |                                                     |                                                 |         |                        |        |      |        
|Net
      decrease in cash and cash equivalents                                         |                                                     |                                                 | (22,332 | )                      |        |      | 7,274   |      
|Cash and
      cash equivalents at beginning of period                                  |                                                     |                                                 | 26,325  |                        |        |      | 5,620   |      
|                                                                                        |                                                     |                                                 |         |                        |        |      |        
|Cash and
      cash equivalents at end of period                                        |                                                     | $                                               | 3,993   |                        |        | $    | 12,894  |      
|                                                                                        |                                                     |                                                 |         |                        |        |      |        
|Supplemental disclosures of cash flow information:                                      |                                                     |                                                 |         |                        |        |      |         |      
|                                                                                        | Cash paid
      during the period for:              |                                                 |         |                        |        |     
|                                                                                        |                                                     | Interest                                        |         | $                      | 15,656 |      |         | $     | 11,936 |  
|                                                                                        |                                                     | Income
      taxes                              |         |                        | 946    |      |         |       | 180    |  

See accompanying notes

7



---



SALEM COMMUNICATIONS CORPORATIONNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

Information with respect to
the three months and six months ended June 30, 2004 and 2003 is unaudited.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles (GAAP) for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by GAAP for complete financial statements. In the opinion of
management, the unaudited interim financial statements contain all adjustments,
consisting of normal recurring accruals, necessary for a fair presentation of
the financial position, results of operations and cash flows of the company, for
the periods presented. The results of operations for the interim periods are not
necessarily indicative of the results of operations for the full year. For
further information, refer to the consolidated financial statements and
footnotes thereto included in our annual report on Form 10-K for the year ended
December 31, 2003.

The balance sheet at December 31, 2003
has been derived from the audited financial statements at that date but does not
include all of the information and footnotes required by generally accepted
principles for complete financial statements.

NOTE 2. ACQUISITIONS AND OTHER SIGNIFICANT TRANSACTIONS

|                    |  |            |  |               |  |                              |        |         |  | 
|------------------- |  | ---------- |  | ------------- |  | ---------------------------- | ------ | ------- |  | 
|                    |  |            |  |               |  |                             
|                    |  |            |  |               |  | Acquisition                  |        | Format 
|Acquisition Date    |  | Station(s) |  | Market Served |  | Cost                         |        | Changed
|                    |  |            |  |               |  |                              |        |         | 
|                    |  |            |  |               |  | (Dollars in
      thousands)
|May 28,
      2004  |  | KJPN-AM    |  | Honolulu, HI  |  | $                            | 500    |         |  | 
|June 29,
      2004 |  | WAFS-AM    |  | Atlanta, GA   |  |                              | 16,413 |         |  | 
|                    |  |            |  |               |  |                              |        |        
|                    |  |            |  |               |  | $                            | 16,913 |         |  | 
|                    |  |            |  |               |  |                              |        |        

On March 26, 2004, the company entered into an agreement to acquire the assets of radio station WQBH-AM in
Detroit, Michigan for approximately $4.8 million. We anticipate this transaction to close in the third quarter
of 2004.

On May 5, 2004, the company entered into an agreement to acquire the assets of radio stations KPOI-FM and
KHUI-FM in Honolulu, Hawaii for approximately $3.7 million.  We anticipate this transaction to close in the third quarter of 2004.

On June 23, 2004, the company entered into an agreement to acquire the assets of radio station
 KIIS-AM in Thousand Oaks, California for approximately $0.8 million.  We anticipate this transaction to close in the third quarter of 2004.

8



---

NOTE 3. STOCK-BASED COMPENSATION

Employee stock options are
accounted for under Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, which requires the recognition of expense when
the option price is less than the fair value of the stock at the date of grant.

The Company generally awards
options for a fixed number of shares at an option price equal to the fair value
at the date of grant. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting
Standards (SFAS) No.123, Accounting for Stock-Based Compensation and SFAS No. 148 Accounting for Stock-Based
CompensationTransition and Disclosure.

SFAS No. 123, as amended by
SFAS No. 148, permits companies to recognize, as expense over the vesting period,
the fair value of all stock-based awards on the date of grant. The Black-Scholes
option valuation model was developed for use in estimating the fair value of traded
options, which have no vesting restrictions and are fully transferable. Because
the Company's stock-based compensation plans have characteristics significantly
different from those of traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, management believes
that the existing option valuation models do not necessarily provide a reliable
single measure of the fair value of awards from the plan. Therefore, as permitted,
the Company applies the existing accounting rules under APB No. 25 and provides
pro forma net income (loss) and pro forma earnings (loss) per share disclosures for
stock-based awards made during the year as if the fair value method defined in
SFAS No. 123, as amended, had been applied. Net income (loss) and earnings
(loss) per share for each of the three months and six months ended June 30, 2004 and 2003
would have changed to the following pro forma amounts:

| |                                                                                                                        |   |                                                 |   |                        |   |        |   |      |   |        |   |  |   |        |   | 
| | ---------------------------------------------------------------------------------------------------------------------- | - | ----------------------------------------------- | - | ---------------------- | - | ------ | - | ---- | - | ------ | - |  | - | ------ | - | 
| |                                                                                                                        |   | Three Months
      Ended                        |   | Six Months
      Ended
| |                                                                                                                        |   | June 30,                                        |   | June
30,              
| |                                                                                                                        |   |                                                 |   |                       
| |                                                                                                                        |   | 2003                                            |   | 2004                   |   | 2003   |   | 2004
| |                                                                                                                        |   |                                                 |   |                        |   |        |   |     
| |                                                                                                                        |   | (Dollars in thousands, except per share
  data)
|
| | Net income
      (loss), as reported                                                                                   | $ | 1,842                                           |   |                        | $ | (163   | ) |      | $ | (4,246 | ) |  | $ | 1,080  |  
| | Add:
      Stock-based compensation, as reported                                                                       |   |                                                |   |                        |   |       |   |      |   |       |   |  |   |       |  
| | Deduct:
      Total stock-based compensation determined under fair value based method
      for all awards, net of tax |   | (99                                             | ) |                        |   | (2,226 | ) |      |   | (418   | ) |  |   | (2,877 | )
| |                                                                                                                        |   |                                                 |   |                        |   |        |   |      |   |        |   | 
| | Pro forma
      net income (loss)                                                                                      | $ | 1,743                                           |   |                        | $ | (2,389 | ) |      | $ | (4,664 | ) |  | $ | (1,797 | )
| |                                                                                                                        |   |                                                 |   |                        |   |        |   |      |   |        |  
| | Income
      (loss) per share:                                                                                         |   |                                                 |   |                        |   |        |   |      |   |        |   |  |   |        |  
| | Basic
      income (loss) per share - as reported                                                                      | $ | 0.08                                            |   |                        | $ | (0.01  | ) |      | $ | (0.18  | ) |  | $ | 0.04   |  
| | Basic
      income (loss) per share - pro forma                                                                        | $ | 0.07                                            |   |                        | $ | (0.09  | ) |      | $ | (0.20  | ) |  | $ | (0.07  | )
| | Diluted income (loss) per share -
     as reported                                                                     | $ | 0.08                                            |   |                        | $ | (0.01  | ) |      | $ | (0.18  | ) |  | $ | 0.04   |  
| | Diluted income (loss) per share - pro forma                                                                            | $ | 0.07                                            |   |                        | $ | (0.09  | ) |      | $ | (0.20  | ) |  | $ | (0.07  | )

9



---

NOTE 4. RECENT ACCOUNTING PRONOUNCEMENTS

Statement of Financial
Accounting Standards No. 145

In April 2002, the Financial
Accounting Standards Board (FASB) issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. This statement rescinds SFAS No. 4, Reporting Gains and Losses
from Extinguishment of Debt, and an amendment of that statement, SFAS Statement
No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. In
addition, SFAS No. 145 amends FASB Statement No. 13, Accounting for Leases.
Salem adopted this statement on January 1, 2003 and its adoption resulted in the
classification of any loss on early retirement of debt in other income and
expense rather than as an extraordinary item under the prior rules.

Statement of Financial
Accounting Standards No. 148

In December 2002, the FASB
issued SFAS No. 148, Accounting for Stock-Based CompensationTransition and
Disclosure, an amendment of SFAS No. 123. This statement amends SFAS No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this statement amends the
disclosure requirement of SFAS No. 123 to require prominent disclosure in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. Salem adopted this statement and its adoption did not have a material
impact on Salems financial position, results of operations or cash flows. As
permitted under the statement, Salem continues to measure any expense related to
stock options under the intrinsic value method and provides the required
disclosures under the fair value method in Note 2.

Financial Interpretation No. 46

In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. FIN 46 requires an
investor with a majority of the variable interests (primary beneficiary) in a
variable interest entity (VIE) to consolidate the entity and also
requires majority and significant variable interest investors to provide certain
disclosures. A VIE is an entity in which the voting equity investors do not have
a controlling financial interest, or the equity investment at risk is insufficient
to finance the entitys activities without receiving additional subordinated financial
support from other parties. For arrangements entered into with VIEs created prior
to January 31, 2003, the provisions of FIN 46 were originally effective as of the
beginning of the three months ended September 27, 2003, however, the FASB
subsequently delayed the effective date of this provision until the first interim
or annual period ending after December 15, 2003. The provisions of FIN 46 were
effective immediately for all arrangements entered into with new VIEs created
after January 31, 2003.

Salem performed
a review of its investments in both non-marketable and marketable
securities as well as other arrangements to determine whether the investee or
other party is a VIE and then whether Salem is the primary beneficiary of
any of the related entities. The review did not identify any VIE that would
require consolidation as June 30, 2004. Provided that Salem
is not the primary beneficiary, the maximum exposure to losses related to any
entity that may be determined to be a VIE is generally limited to the carrying
amount of the investment in the entity.

10



---



NOTE 5. EQUITY OFFERING

On May 5, 2004, Salem sold 2,325,000 shares of its Class A common stock
at $30.00 per share in a public offering, generating offering proceeds of approximately $65.7 million, net of approximately $4.0 million of offering costs.

In addition, the Chairman and Chief Executive Officer sold 290,000 shares and
485,000 shares, respectively, in the public offering in May 2004, that were beneficially owned by them. Salem did not receive any monies from
the sale of shares of the companys Class A common stock by these selling stockholders.

NOTE 6. REDEMPTION OF $150.0 MILLION 9% SENIORS SUBORDINATED NOTES DUE 2011

During the quarter ended June 30, 2004, Salem repurchased
an aggregate amount of $55.6 million of its $150.0 million 9% of senior subordinated
notes due 2011 (9% Notes) through a combination of redemptions and open market repurchases (the Redemption) pursuant
to the terms of the indenture governing the 9% Notes.
The Redemption resulted in a loss on early retirement of long-term debt of approximately $6.6 million.
Salem used the proceeds of its follow-on offering of 2.3 million shares of
Class A common stock issued in May 2004, to complete the Redemption.

NOTE 7. COSTS OF DENIED TOWER SITE AND LICENSE UPGRADE

In April 2003, the San Diego
County Board of Supervisors denied Salems motion to relocate its radio towers
for radio station KCBQ-AM, San Diego, California. As a result of the denial, the
company recorded a write-off of approximately $1.3 million in capitalized costs
related to the project. Additionally, in May 2003, the Federal Communications
Commission (FCC) denied Salems motion to increase the night-time coverage of
radio station WGKA-AM, Atlanta, Georgia. As a result of the denial, the company
recorded a write-off of approximately $0.9 million in capitalized costs related
to the project. These write-offs were recorded in the quarter ended March 31,
2003 in Salems Statement of Operations as Costs of denied tower site and
license upgrade.

NOTE 8. REDEMPTION OF $100.0 MILLION 91⁄2% SENIOR SUBORDINATED
NOTES DUE 2007

On January 22, 2003, Salem
redeemed its $100.0 million 91⁄2% senior subordinated notes due 2007 (91⁄2%
Notes), representing all such notes then outstanding. The redemption resulted
in a loss on early retirement of long-term debt of $6.4 million. Salem used the
proceeds of its $100.0 million 73⁄4% senior subordinated notes due 2010 (73⁄4%
Notes) issued in December 2002, and additional borrowings under Salems credit
facility to redeem the 91⁄2% Notes.

NOTE 9. AMORTIZABLE INTANGIBLE ASSETS

The following tables provide
details, by major category, of the significant classes of amortizable intangible
assets:

|                                          |  |                         |                        |       |              |   |             |        |   |   |       |      
|----------------------------------------- |  | ----------------------- | ---------------------- | ----- | ------------ | - | ----------- | ------ | - | - | ----- | -----
|                                          |  | As of December 31, 2003
|                                          |  |                        
|                                          |  |                         |                        |       |              |   | Accumulated
|                                          |  |                         | Cost                   |       | Amortization |   | Net        
|                                          |  |                         |                        |       |              |   |            
|                                          |  |                         | (Dollars in thousands)
|                                          |  |                         |                       
|Customer lists and contracts              |  | $                       | 4,249                  |       |              | $ | (2,245      | )      |   | $ | 2,004
|Favorable
      and assigned leases       |  |                         | 1,459                  |       |              |   | (923        | )      |   |   | 536  
|Other
      amortizable intangible assets |  |                         | 3,290                  |       |              |   | (1,568      | )      |   |   | 1,722
|                                          |  |                         |                        |       |              |   |             |        |   |   |       |      
|                                          |  |                         | $                      | 8,998 |              |   | $           | (4,736 | ) |   | $     | 4,262
|                                          |  |                         |                        |       |              |   |             |        |   |   |       |      

|                                          |  |                     |                        |       |              |   |             |        |   |   |       |      
|----------------------------------------- |  | ------------------- | ---------------------- | ----- | ------------ | - | ----------- | ------ | - | - | ----- | -----
|                                          |  | As of June 30, 2004
|                                          |  |                    
|                                          |  |                     |                        |       |              |   | Accumulated
|                                          |  |                     | Cost                   |       | Amortization |   | Net        
|                                          |  |                     |                        |       |              |   |            
|                                          |  |                     | (Dollars in thousands)
|                                          |  |                     |                       
|Customer
      lists and contracts        |  | $                   | 4,249                  |       |              | $ | (2,680      | )      |   | $ | 1,569
|Favorable
      and assigned leases       |  |                     | 1,459                  |       |              |   | (954        | )      |   |   | 505  
|Other
      amortizable intangible assets |  |                     | 3,293                  |       |              |   | (1,867      | )      |   |   | 1,426
|                                          |  |                     |                        |       |              |   |             |        |   |   |       |      
|                                          |  |                     | $                      | 9,001 |              |   | $           | (5,501 | ) |   | $     | 3,500
|                                          |  |                     |                        |       |              |   |             |        |   |   |       |      

11



---



Based on the amortizable
intangible assets as of June 30, 2004, we estimate amortization expense for
the next five years to be as follows:

|                         |  |                        |   |      
|------------------------ |  | ---------------------- | - | -----
|Year Ending December 31, |  | Amortization Expense  
|                         |  |                       
|                         |  | (Dollars in thousands)
|                         |  |                       
|2004                     |  |                        | $ | 1,529
|2005                     |  |                        |   | 1,278
|2006                     |  |                        |   | 730  
|2007                     |  |                        |   | 439  
|2008                     |  |                        |   | 66   

NOTE 10. BASIC AND DILUTED NET EARNINGS PER SHARE

Basic net earnings per share
has been computed using the weighted average number of Class A and Class B
shares of common stock outstanding during the period. Diluted net earnings per
share is computed using the weighted average number of Class A and Class B
shares of common stock outstanding during the period plus the dilutive effects
of outstanding stock options.

Options to purchase 636,715
and 1,402,066 shares of Class A common stock were outstanding at June 30,
2003 and 2004, respectively. Diluted weighted average shares outstanding
excludes outstanding stock options whose exercise price is in excess of the
average price of the companys stock price. Those options are excluded due to
their antidilutive effect. For periods in which the company has a net loss, all
options are excluded due to their antidilutive effect.

12



---



NOTE 11. DERIVATIVE INSTRUMENTS

We are exposed to
fluctuations in interest rates. We actively monitor these fluctuations and use
derivative instruments from time to time to manage the related risk. In
accordance with our risk management strategy, we use derivative instruments only
for the purpose of managing risk associated with an asset, liability, committed
transaction, or probable forecasted transaction that is identified by
management. Our use of derivative instruments may result in short-term gains or
losses and may increase volatility in our earnings.

We had two interest rate
swap agreements outstanding as of June 30, 2004, which are used to manage
our exposure to changes in the fair value of a recognized asset or liability
that may result due to changes in interest rates. The counter parties to these
interest rate swap agreements are major financial institutions. Although we are
exposed to credit loss in the event of nonperformance by the counter parties we
do not anticipate nonperformance by the counter parties nor would we expect any
such loss to be material.

At June 30, 2004, an
interest rate swap agreement with a notional principal amount of $66.0 million
was outstanding. This agreement relates to our $94.4 million 9% Notes. This agreement expires in 2011 when
the 9% Notes mature, and effectively swaps the 9.0% fixed interest rate on $66.0
million of the 9% Notes for a floating rate equal to the LIBOR rate plus 3.09%.
The estimated fair value of this swap agreement and the excess of fair value
over the book value of the debt hedged by the swap, based on current market
rates, were each $4.8 million at June 30, 2004. Changes in the fair value
of the swap and the changes in the fair value of debt being hedged are recorded
as part of interest expense. The fair value of the swap agreement is included
with long-term assets, and the fair value of the debt hedged by the swap is
recorded in long-term debt consistent with the maturity date of the swap and related debt.
Because this fair value hedge is effective (that is, the change in the fair
value of the hedge instrument is designed to be equal to the change in the fair
value of the item being hedged), there was no income statement effect relative
to the change in the fair value of the swap agreement. Interest expense for the
six months ended June 30, 2004 was reduced by $1.5 million as a result of
the difference between the 9.0% fixed interest rate on our debt and the floating
interest rate under the swap agreement, which was 4.31% for the six months ended
June 30, 2004.

We have a second interest rate swap agreement with a notional principal amount of
$24.0 million. This agreement also relates to our 9% Notes. This agreement
expires in 2011 when the 9% Notes mature, and effectively swaps the 9.0% fixed
interest rate on $24.0 million of the 9% Notes for a floating rate equal to the
LIBOR rate plus 4.86%. The estimated negative fair value of this swap agreement
and the excess of book value over the change in fair value of the debt hedged by
the swap, based on current market rates, were each $(1.4) million at June 30,
2004. Changes in the fair value of the swap and the changes in the fair value of
debt being hedged are recorded as part of interest expense. The fair value of
the swap agreement is included with long-term liabilities, and the fair value of
the debt hedged by the swap is recorded in long-term debt consistent with the
maturity date of the swap and related debt. Because this fair value hedge is effective (that is,
the change in the fair value of the hedge instrument is designed to be equal to
the change in the fair value of the item being hedged), there was no income
statement effect relative to the change in the fair value of the swap agreement.
Interest expense for the six months ended June 30, 2004 was reduced by
$0.3 million as a result of the difference between the 9.0% fixed interest rate
on our debt and the floating interest rate under the swap agreement, which was
6.08% for the six months ended June 30, 2004.

NOTE 12. CONTINGENCIES

Incident to our business
activities, we are party to a number of legal proceedings, lawsuits and other
claims. Such matters are subject to many uncertainties and outcomes are not
predictable with assurance. Also, we maintain insurance which may provide
coverage for such matters. Consequently, our management is unable to ascertain
the ultimate aggregate amount of monetary liability or the financial impact with
respect to these matters. However, our management believes, at this time, that
the final resolution of these matters, individually and in the aggregate, will
not have a material adverse effect upon our financial position, results of
operations or cash flows.

13



---



NOTE 13. SEGMENT DATA

SFAS No. 131, Disclosures
About Segments of an Enterprise and Related Information, requires companies to
provide certain information about their operating segments. The company has one
reportable operating segmentradio broadcastingwhich includes our talk and
music formats and our various radio networks. The remaining non-reportable
segments consist of the Salem Web Network (our Internet division) and Salem
Publishing  (our publishing business), which do not meet the reportable
segment quantitative thresholds and accordingly are aggregated below as other
media. Revenue and expenses earned and charged between segments are recorded at
fair value.

Management uses operating
income before depreciation, amortization and unusual charges as its measure of
profitability for purposes of assessing performance and allocating
resources.

|                                                                                                                                                            |                          |  |  |   |                          |  |                        |   |        |   |                        |   |        |   |        |   |        |   |        |   |  |   |        |   | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------ |  |  | - | ------------------------ |  | ---------------------- | - | ------ | - | ---------------------- | - | ------ | - | ------ | - | ------ | - | ------ | - |  | - | ------ | - | 
|                                                                                                                                                            |                          |  |  |   | Three Months
      Ended |  | Six Months
      Ended
|                                                                                                                                                            |                          |  |  |   | June 30,                 |  | June
30,              
|                                                                                                                                                            |                          |  |  |   |                          |  |                        |   |        |   |                        |   |       
|                                                                                                                                                            |                          |  |  |   |                          |  | 2003                   |   | 2004   |   | 2003                   |   | 2004  
|                                                                                                                                                            |                          |  |  |   |                          |  |                        |   |        |   |                        |   |        |   |        |   |       
|                                                                                                                                                            |                          |  |  |   |                          |  |                        |   |        |   | (Dollars in thousands)
|                                                                                                                                                           
|Net
      revenue                                                                                                                                          
|                                                                                                                                                            | Radio
      broadcasting |  |  |   |                          |  |                        |   |        | $ | 43,428                 |   |        | $ | 47,800 |   |        | $ | 82,134 |   |  | $ | 90,957 |  
|                                                                                                                                                            | Other
      media        |  |  |   |                          |  |                        |   |        |   | 2,234                  |   |        |   | 2,352  |   |        |   | 4,155  |   |  |   | 4,298  |  
|                                                                                                                                                            |                          |  |  |   |                          |  |                        |   |        |   |                        |   |        |   |        |   |        |   |        |  
|Consolidated net revenue                                                                                                                                    |                          |  |  |   |                          |  |                        |   |        | $ | 45,662                 |   |        | $ | 50,152 |   |        | $ | 86,289 |   |  | $ | 95,255 |  
|                                                                                                                                                            |                          |  |  |   |                          |  |                        |   |        |   |                        |   |        |   |        |   |        |   |        |  
|                                                                                                                                                           
|Operating
      expenses (excluding depreciation, amortization, legal settlement and costs
      of denied tower site and license upgrade)                 
|                                                                                                                                                            | Radio
      broadcasting |  |  |   |                          |  |                        |   |        | $ | 27,505                 |   |        | $ | 28,875 |   |        | $ | 53,843 |   |  | $ | 56,419 |  
|                                                                                                                                                            | Other
      media        |  |  |   |                          |  |                        |   |        |   | 2,116                  |   |        |   | 2,030  |   |        |   | 3,976  |   |  |   | 4,192  |  
|                                                                                                                                                            | Corporate                |  |  |   |                          |  |                        |   |        |   | 4,027                  |   |        |   | 4,247  |   |        |   | 8,071  |   |  |   | 8,551  |  
|                                                                                                                                                            |                          |  |  |   |                          |  |                        |   |        |   |                        |   |        |   |        |   |        |   |        |  
|Consolidated operating expenses (excluding depreciation,
      amortization, legal settlement and costs of denied tower site and license
      upgrade)     |                          |  |  | $ | 33,648                   |  |                        | $ | 35,152 |   |                        | $ | 65,890 |   |        | $ | 69,162 |  
|                                                                                                                                                            |                          |  |  |   |                          |  |                        |   |        |   |                        |   |        |   |        |   |        |   |        |  
|                                                                                                                                                           
|Operating
      income before depreciation, amortization, costs of
      denied tower site and license upgrade and cost of terminated offering             
|                                                                                                                                                            | Radio
      broadcasting |  |  |   |                          |  |                        |   |        | $ | 15,923                 |   |        | $ | 18,925 |   |        | $ | 28,291 |   |  | $ | 34,538 |  
|                                                                                                                                                            | Other
      media        |  |  |   |                          |  |                        |   |        |   | 118                    |   |        |   | 322    |   |        |   | 179    |   |  |   | 106    |  
|                                                                                                                                                            | Corporate                |  |  |   |                          |  |                        |   |        |   | (4,027                 | ) |        |   | (4,247 | ) |        |   | (8,071 | ) |  |   | (8,551 | )
|                                                                                                                                                            |                          |  |  |   |                          |  |                        |   |        |   |                        |   |        |   |        |   |        |   |        |  
|Consolidated operating income before depreciation, amortization,
      costs of denied tower site and license and cost of terminated offering
      upgrade |                          |  |  | $ | 12,014                   |  |                        | $ | 15,000 |   |                        | $ | 20,399 |   |        | $ | 26,093 |  
|                                                                                                                                                            |                          |  |  |   |                          |  |                        |   |        |   |                        |   |        |   |        |   |        |   |        |  
|                                                                                                                                                           
|Depreciation expense                                                                                                                                       
|                                                                                                                                                            | Radio
      broadcasting |  |  |   |                          |  |                        |   |        | $ | 2,368                  |   |        | $ | 2,417  |   |        | $ | 4,695  |   |  | $ | 4,813  |  
|                                                                                                                                                            | Other media              |  |  |   |                          |  |                        |   |        |   | 127                    |   |        |   | 107    |   |        |   | 258    |   |  |   | 220   
|                                                                                                                                                            | Corporate                |  |  |   |                          |  |                        |   |        |   | 170                    |   |        |   | 223    |   |        |   | 332    |   |  |   | 428    |  
|                                                                                                                                                            |                          |  |  |   |                          |  |                        |   |        |   |                        |   |        |   |        |   |        |   |        |  
|Consolidated depreciation expense                                                                                                                           |                          |  |  |   |                          |  |                        |   |        | $ | 2,665                  |   |        | $ | 2,747  |   |        | $ | 5,285  |   |  | $ | 5,461  |  
|                                                                                                                                                            |                          |  |  |   |                          |  |                        |   |        |   |                        |   |        |   |        |   |        |   |        |  
|                                                                                                                                                           
|Amortization expense                                                                                                                                       
|                                                                                                                                                            | Radio
      broadcasting |  |  |   |                          |  |                        |   |        | $ | 241                    |   |        | $ | 224    |   |        | $ | 483    |   |  | $ | 450   
|                                                                                                                                                            | Other
      media        |  |  |   |                          |  |                        |   |        |   | 162                    |   |        |   | 155    |   |        |   | 323    |   |  |   | 309    |  
|                                                                                                                                                            | Corporate                |  |  |   |                          |  |                        |   |        |   | 2                      |   |        |   | 3      |   |        |   | 4      |   |  |   | 6     
|                                                                                                                                                            |                          |  |  |   |                          |  |                        |   |        |   |                        |   |        |   |        |   |        |   |        |  
|Consolidated amortization expense                                                                                                                           |                          |  |  |   |                          |  |                        |   |        | $ | 405                    |   |        | $ | 382    |   |        | $ | 810    |   |  | $ | 765    |  
|                                                                                                                                                            |                          |  |  |   |                          |  |                        |   |        |   |                        |   |        |   |        |   |        |   |        |  
|                                                                                                                                                           
|Operating
      income before costs of denied tower site and license
    upgrade                                                                           
|                                                                                                                                                            | Radio
      broadcasting |  |  |   |                          |  |                        |   |        | $ | 13,314                 |   |        | $ | 16,284 |   |        | $ | 23,113 |   |  | $ | 29,275
|                                                                                                                                                            | Other
      media        |  |  |   |                          |  |                        |   |        |   | (171                   | ) |        |   | 60     |   |        |   | (402   | ) |  |   | (423   | )
|                                                                                                                                                            | Corporate                |  |  |   |                          |  |                        |   |        |   | (4,199                 | ) |        |   | (4,473 | ) |        |   | (8,407 | ) |  |   | (8,985 | )
|                                                                                                                                                            |                          |  |  |   |                          |  |                        |   |        |   |                        |   |        |   |        |   |        |   |        |  
|Consolidated operating income before costs of denied tower site and
      license upgrade                                                                   |                          |  |  |   |                          |  |                        |   |        | $ | 8,944                  |   |        | $ | 11,871 |   |        | $ | 14,304 |   |  | $ | 19,867 |  
|                                                                                                                                                            |                          |  |  |   |                          |  |                        |   |        |   |                        |   |        |   |        |   |        |   |        |  

14



---



|                                                |                    |   |                        |  |          |   |         |  | 
|----------------------------------------------- | ------------------ | - | ---------------------- |  | -------- | - | ------- |  | 
|                                                |                    |   | December 31,           |  | June 30,
|                                                |                    |   | 2003                   |  | 2004    
|                                                |                    |   |                        |  |         
|                                                |                    |   | (Dollars in thousands)
|                                               
|Total property, plant and equipment, net       
|                                                | Radio broadcasting | $ | 93,055                 |  |          | $ | 97,305 
|                                                | Other media        |   | 1,542                  |  |          |   | 1,405  
|                                                | Corporate          |   | 2,796                  |  |          |   | 3,052  
|                                                |                    |   |                        |  |          |  
|Consolidated property, plant and equipment, net |                    | $ | 97,393                 |  |          | $ | 101,762
|                                                |                    |   |                        |  |          |  
|                                               

|                                                                                                                                              |                                                                                                                   |  |  |  |  |                    |        |   |                    |   |        |      |  |   |         |   |  |   |         |   | 
|--------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------- |  |  |  |  | ------------------ | ------ | - | ------------------ | - | ------ | ---- |  | - | ------- | - |  | - | ------- | - | 
|Reconciliation of operating income before depreciation and
      amortization to income before income taxes and discontinued
      operations
|                                                                                                                                             
|                                                                                                                                              |                                                                                                                   |  |  |  |  | Three Months
Ended |        |   | Six Months
  Ended
|                                                                                                                                              |                                                                                                                   |  |  |  |  | June 30,           |        |   | June 30,          
|                                                                                                                                              |                                                                                                                   |  |  |  |  |                    |        |   |                    |  
|                                                                                                                                              |                                                                                                                   |  |  |  |  | 2003               |        |   | 2004               |   |        | 2003 |  |   | 2004   
|                                                                                                                                              |                                                                                                                   |  |  |  |  |                    |        |   |                    |   |        |      |  |   |        
|                                                                                                                                              | Operating
      income before depreciation, amortization and costs of
      denied tower site and license upgrade |  |  |  |  | $                  | 12,014 |   |                    | $ | 15,000 |      |  | $ | 20,399  |   |  | $ | 26,093  |  
|                                                                                                                                              | Depreciation expense                                                                                              |  |  |  |  |                    | (2,665 | ) |                    |   | (2,747 | )    |  |   | (5,285  | ) |  |   | (5,461  | )
|                                                                                                                                              | Amortization expense                                                                                              |  |  |  |  |                    | (405   | ) |                    |   | (382   | )    |  |   | (810    | ) |  |   | (765    | )
|                                                                                                                                              | Costs of
      denied tower site and license upgrade                                                              |  |  |  |  |                    |       |   |                    |   |       |      |  |   | (2,202  | ) |  |   |        |  
|                                                                                                                                              | Interest
      income                                                                                             |  |  |  |  |                    | 17     |   |                    |   | 93     |      |  |   | 171     |   |  |   | 122     |  
|                                                                                                                                              | Gain (loss) on
      sale of assets                                                                               |  |  |  |  |                    |       |   |                    |   | 405    |      |  |   |        |   |  |   | 181     |  
|                                                                                                                                              | Interest
      expense                                                                                            |  |  |  |  |                    | (5,600 | ) |                    |   | (5,366 | )    |  |   | (12,236 | ) |  |   | (11,036 | )
|                                                                                                                                              | Loss on
      early redemption of longterm debt                                                                  |  |  |  |  |                    |       |   |                    |   | (6,588 | )    |  |   | (6,440  | ) |  |   | (6,588  | )
|                                                                                                                                              | Other
      expense, net                                                                                          |  |  |  |  |                    | (92    | ) |                    |   | (126   | )    |  |   | (161    | ) |  |   | (237    | )
|                                                                                                                                              |                                                                                                                   |  |  |  |  |                    |        |   |                    |   |        |      |  |  
|Pretax income (loss)                                                                                                                          |                                                                                                                   |  |  |  |  | $                  | 3,269  |   |                    | $ | 289    |      |  | $ | (6,564  | ) |  | $ | 2,309   |  
|                                                                                                                                              |                                                                                                                   |  |  |  |  |                    |        |   |                    |   |        |      |  |  

15



---



NOTE 14. CONSOLIDATING FINANCIAL STATEMENTS

The following is the
consolidating information of Salem Communications Corporation for purposes of
presenting the financial position and operating results of our wholly-owned
subsidiary, Salem Communications Holding Corporation (Salem Holding) as the issuer of
the $94.4 million 9% Notes and $100.0 million 73⁄4% Notes and its guarantor
subsidiaries on a consolidated basis and the financial position and operating
results of the other guarantors, which are consolidated within the company.
Separate financial information of Salem Holding on an unconsolidated basis is not
presented because Salem Holding has substantially no assets, operations or cash other
than its investments in subsidiaries. On April 1, 2003, the assets of OnePlace,
LLC (OnePlace) were transferred to SCA License Corporation, a wholly-owned
subsidiary of Salem Communications Acquisition Corporation (Salem Acquisition). The
financial position and results of operations for OnePlace are presented with
Salem Publishing in Other Media.

16



---



SALEM COMMUNICATIONS CORPORATION
CONSOLIDATING BALANCE SHEET
(IN THOUSANDS)
(UNAUDITED)

|                                                                                |                                           |   |                     |   |              |   |         |       |         |   |             |       |              |   |         |        |       |   |          |      |   |   |         |        | 
|------------------------------------------------------------------------------- | ----------------------------------------- | - | ------------------- | - | ------------ | - | ------- | ----- | ------- | - | ----------- | ----- | ------------ | - | ------- | ------ | ----- | - | -------- | ---- | - | - | ------- | ------ | 
|                                                                                |                                           |   | As of June 30, 2004
|                                                                                |                                           |   |                    
|                                                                                |                                           |   |                     |   | Issuer and  
|                                                                                |                                           |   |                     |   | Guarantor   
|                                                                                |                                           |   | Guarantors          |   | Subsidiaries
|                                                                                |                                           |   |                     |   |             
|                                                                                |                                           |   |                     |   |              |   | Salem   |       | Other   |   | Salem       |       |              |   |         |        | Salem |  
|                                                                                |                                           |   | Parent              |   | Acquisition  |   | Media   |       | Holding |   | Adjustments |       | Consolidated |  
|                                                                                |                                           |   |                     |   |              |   |         |       |         |   |             |       |              |   |         |        |       |   |          |      |   |   |         |       
|Current assets:                                                                 |                                           |   |                     |   |              |   |         |       |         |   |            
|                                                                                | Cash and cash equivalents                 |   | $                   |  |              |   | $       | 731   |         |   | $           | 1,535 |              |   | $       | 10,627 |       |   | $        |     |   |   | $       | 12,893
|                                                                                | Accounts receivable                       |   |                     |  |              |   |         | 1,843 |         |   |             | 1,546 |              |   |         | 27,601 |       |   |          | (32  | ) |   |         | 30,958 | 
|                                                                                | Other receivables                         |   |                     |  |              |   |         | 4     |         |   |             | 111   |              |   |         | 2,962  |       |   |          | (830 | ) |   |         | 2,247 
|                                                                                | Prepaid expenses                          |   |                     |  |              |   |         | 27    |         |   |             | 36    |              |   |         | 1,784  |       |   |          |     |   |   |         | 1,847  | 
|                                                                                | Due from stockholders                     |   |                     |  |              |   |         |      |         |   |             |      |              |   |         | 42     |       |   |          |     |   |   |         | 42    
|                                                                                | Deferred income taxes                     |   |                     |  |              |   |         | (124  | )       |   |             | 103   |              |   |         | 4,574  |       |   |          | (237 | ) |   |         | 4,316  | 
|                                                                                |                                           |   |                     |   |              |   |         |       |         |   |             |       |              |   |         |        |       |   |          |      |   |   |         |       
|Total current assets                                                            |                                           |   |                    |   |              |   | 2,481   |       |         |   | 3,331       |       |              |   | 47,590  |        |       |   | (1,099   | )    |   |   | 52,303 
|Property, plant and equipment, net                                              |                                           |   |                    |   |              |   | 5,966   |       |         |   | 1,023       |       |              |   | 94,772  |        |       |   |         |      |   |   | 101,761 |       
|Broadcast licenses                                                              |                                           |   |                    |   |              |   | 93,602  |       |         |   |            |       |              |   | 303,690 |        |       |   |         |      |   |   | 397,292
|Goodwill                                                                        |                                           |   |                    |   |              |   | 8       |       |         |   | 5,011       |       |              |   | 6,110   |        |       |   |         |      |   |   | 11,129  |       
|Amortizable intangible assets, net                                              |                                           |   |                    |   |              |   |        |       |         |   | 135         |       |              |   | 3,365   |        |       |   |         |      |   |   | 3,500  
|Bond issue costs                                                                |                                           |   |                    |   |              |   |        |       |         |   |            |       |              |   | 3,661   |        |       |   |         |      |   |   | 3,661   |       
|Fair value of interest rate swap                                                |                                           |   |                    |   |              |   |        |       |         |   |            |       |              |   | 3,363   |        |       |   |         |      |   |   | 3,363   |       
|Intercompany receivables                                                        |                                           |   | 261,819             |   |              |   | 807     |       |         |   |            |       |              |   | 1,795   |        |       |   | (264,421 | )    |   |   |        |       
|Other assets                                                                    |                                           |   |                    |   |              |   |        |       |         |   | 401         |       |              |   | 6,497   |        |       |   |         |      |   |   | 6,898   |       
|                                                                                |                                           |   |                     |   |              |   |         |       |         |   |             |       |              |   |         |        |       |   |          |      |   |   |         |       
|Total assets                                                                    |                                           | $ | 261,819             |   |              | $ | 102,864 |       |         | $ | 9,901       |       |              | $ | 470,843 |        |       | $ | (265,520 | )    |   | $ | 579,907 |       
|                                                                                |                                           |   |                     |   |              |   |         |       |         |   |             |       |              |   |         |        |       |   |          |      |   |   |        
|Current liabilities:                                                            |                                           |   |                     |   |             
|                                                                                | Accounts payable                          |   | $                   |  |              |   | $       | 6     |         |   | $           | 41    |              |   | $       | 413    |       |   | $        |     |   |   | $       | 460    | 
|                                                                                | Accrued expenses                          |   |                     |  |              |   |         | 253   |         |   |             | 375   |              |   |         | 5,810  |       |   |          | (114 | ) |   |         | 6,324  | 
|                                                                                | Accrued compensation and related expenses |   |                     | 9 |              |   |         | 224   |         |   |             | 325   |              |   |         | 4,465  |       |   |          |     |   |   |         | 5,023  | 
|                                                                                | Accrued interest                          |   |                     |  |              |   |         |      |         |   |             |      |              |   |         | 5,444  |       |   |          |     |   |   |         | 5,444  | 
|                                                                                | Deferred revenue                          |   |                     |  |              |   |         |      |         |   |             | 1,197 |              |   |         |       |       |   |          |     |   |   |         | 1,197  | 
|                                                                                | Income taxes payable                      |   |                     |  |              |   |         | 11    |         |   |             | 10    |              |   |         | (243   | )     |   |          | 228  |   |   |         | 6      | 
|                                                                                | Current maturities of long-term debt      |   |                     |  |              |   |         |      |         |   |             |      |              |   |         | 15     |       |   |          |     |   |   |         | 15     | 
|                                                                                |                                           |   |                     |   |              |   |         |       |         |   |             |       |              |   |         |        |       |   |          |      |   |   |         |       
|Total current liabilities                                                       |                                           |   | 9                   |   |              |   | 494     |       |         |   | 1,948       |       |              |   | 15,904  |        |       |   | 114      |      |   |   | 18,469  |       
|Intercompany payables                                                           |                                           |   | 12,269              |   |              |   | 5,818   |       |         |   | 17,930      |       |              |   | 1,357   |        |       |   | (37,374  | )    |   |   |        |       
|Long-term debt                                                                  |                                           |   |                    |   |              |   |        |       |         |   |            |       |              |   | 284,408 |        |       |   |         |      |   |   | 284,408 |       
|Fair value in excess of book value of debt
      hedged with interest rate swap |                                           |   |                    |   |              |   |        |       |         |   |            |       |              |   | 3,363   |        |       |   |         |      |   |   | 3,363   |       
|Deferred income taxes                                                           |                                           |   | (1,811              | ) |              |   | (1,321  | )     |         |   | (1,606      | )     |              |   | 38,382  |        |       |   | (4,919   | )    |   |   | 28,725  |       
|Deferred revenue                                                                |                                           |   |                    |   |              |   |        |       |         |   |            |       |              |   | 3,455   |        |       |   |         |      |   |   | 3,455   |       
|Other liabilities                                                               |                                           |   |                    |   |              |   |        |       |         |   |            |       |              |   | 877     |        |       |   |         |      |   |   | 877     |       
|Stockholders equity                                                            |                                           |   | 251,352             |   |              |   | 97,873  |       |         |   | (8,371      | )     |              |   | 123,097 |        |       |   | (223,341 | )    |   |   | 240,610 |       
|                                                                                |                                           |   |                     |   |              |   |         |       |         |   |             |       |              |   |         |        |       |   |          |      |   |   |         |       
|Total liabilities and stockholders equity                                      |                                           | $ | 261,819             |   |              | $ | 102,864 |       |         | $ | 9,901       |       |              | $ | 470,843 |        |       | $ | (265,520 | )    |   | $ | 579,907 |       
|                                                                                |                                           |   |                     |   |              |   |         |       |         |   |             |       |              |   |         |        |       |   |          |      |   |   |         |       

17



---



SALEM COMMUNICATIONS CORPORATION
CONSOLIDATING INCOME STATEMENT
(IN THOUSANDS)
(UNAUDITED)

|                                                              |                                  |   |                                |        |              |   |        |        |         |   |             |       |              |   |        |         |       |   |        |        |   |   |        |         |  
|------------------------------------------------------------- | -------------------------------- | - | ------------------------------ | ------ | ------------ | - | ------ | ------ | ------- | - | ----------- | ----- | ------------ | - | ------ | ------- | ----- | - | ------ | ------ | - | - | ------ | ------- | -
|                                                              |                                  |   | Six Months Ended June 30, 2004
|                                                              |                                  |   |                               
|                                                              |                                  |   |                                |        | Issuer and  
|                                                              |                                  |   |                                |        | Guarantor   
|                                                              |                                  |   | Guarantors                     |        | Subsidiaries
|                                                              |                                  |   |                                |        |             
|                                                              |                                  |   |                                |        |              |   | Salem  |        | Other   |   | Salem       |       |              |   |        |         | Salem |  
|                                                              |                                  |   | Parent                         |        | Acquisition  |   | Media  |        | Holding |   | Adjustments |       | Consolidated |  
|                                                              |                                  |   |                                |        |              |   |        |        |         |   |             |       |             
|Net broadcasting revenue                                      |                                  | $ |                               |        |              | $ | 6,044  |        |         | $ |            |       |              | $ | 85,931 |         |       | $ | (1,018 | )      |   | $ | 90,957 |        
|Other media revenue                                           |                                  |   |                               |        |              |   |       |        |         |   | 5,021       |       |              |   |       |         |       |   | (723   | )      |   |   | 4,298  |        
|                                                              |                                  |   |                                |        |              |   |        |        |         |   |             |       |              |   |        |         |       |   |        |        |   |   |        |        
|Total revenue                                                 |                                  |   |                               |        |              |   | 6,044  |        |         |   | 5,021       |       |              |   | 85,931 |         |       |   | (1,741 | )      |   |   | 95,255 |        
|Operating expenses:                                          
|                                                              | Broadcasting operating expenses  |   |                                |       |              |   |        | 4,462  |         |   |             |      |              |   |        | 52,499  |       |   |        | (542   | ) |   |        | 56,419  |  
|                                                              | Other media operating expenses   |   |                                |       |              |   |        |       |         |   |             | 5,592 |              |   |        | (252    | )     |   |        | (1,148 | ) |   |        | 4,192   |  
|                                                              | Corporate expenses               |   |                                |       |              |   |        |       |         |   |             |      |              |   |        | 8,551   |       |   |        |       |   |   |        | 8,551   |  
|                                                              | Depreciation and amortization    |   |                                |       |              |   |        | 233    |         |   |             | 297   |              |   |        | 5,696   |       |   |        |       |   |   |        | 6,226   |  
|                                                              |                                  |   |                                |        |              |   |        |        |         |   |             |       |              |   |        |         |       |   |        |        |   |   |        |        
|Total operating expenses                                      |                                  |   |                               |        |              |   | 4,695  |        |         |   | 5,889       |       |              |   | 66,494 |         |       |   | (1,690 | )      |   |   | 75,388 |        
|                                                              |                                  |   |                                |        |              |   |        |        |         |   |             |       |              |   |        |         |       |   |        |        |   |   |        |        
|Operating income (loss)                                       |                                  |   |                               |        |              |   | 1,349  |        |         |   | (868        | )     |              |   | 19,437 |         |       |   | (51    | )      |   |   | 19,867 |        
|Other income (expense):                                       |                                  |   |                                |       
|                                                              | Interest income                  |   |                                | 2,452  |              |   |        | 19     |         |   |             | 16    |              |   |        | 5,302   |       |   |        | (7,667 | ) |   |        | 122     |  
|                                                              | Interest expense                 |   |                                | (4,493 | )            |   |        | (2,448 | )       |   |             | (710  | )            |   |        | (11,052 | )     |   |        | 7,667  |   |   |        | (11,036 | )
|                                                              | Loss on early retirement of debt |   |                                |       |              |   |        |       |         |   |             |      |              |   |        | (6,588  | )     |   |        |       |   |   |        | (6,588  | )
|                                                              | Loss on sale of assets           |   |                                |       |              |   |        |       |         |   |             |      |              |   |        | 181     |       |   |        |       |   |   |        | 181     |  
|                                                              | Other expense, net               |   |                                |       |              |   |        |       |         |   |             |      |              |   |        | (237    | )     |   |        |       |   |   |        | (237    | )
|                                                              |                                  |   |                                |        |              |   |        |        |         |   |             |       |              |   |        |         |       |   |        |        |   |   |        |        
|Income (loss) before income taxes and discontinued operations |                                  |   | (2,041                         | )      |              |   | (1,080 | )      |         |   | (1,562      | )     |              |   | 7,043  |         |       |   | (51    | )      |   |   | 2,309  |         |  
|Provision (benefit) for income taxes                          |                                  |   | (788                           | )      |              |   | (399   | )      |         |   | (585        | )     |              |   | 2,665  |         |       |   | 1      |        |   |   | 894    |        
|                                                              |                                  |   |                                |        |              |   |        |        |         |   |             |       |              |   |        |         |       |   |        |        |   |   |        |        
|Income (loss) before discontinued operations                  |                                  |   | (1,253                         | )      |              |   | (681   | )      |         |   | (977        | )     |              |   | 4,378  |         |       |   | (52    | )      |   |   | 1,415  |         |  
|Discontinued operations, net of taxes                         |                                  |   |                               |        |              |   |       |        |         |   |            |       |              |   | (335   | )       |       |   |       |        |   |   | (335   | )      
|                                                              |                                  |   |                                |        |              |   |        |        |         |   |             |       |              |   |        |         |       |   |        |        |   |   |        |        
|Net income (loss)                                             |                                  | $ | (1,253                         | )      |              | $ | (681   | )      |         | $ | (977        | )     |              | $ | 4,043  |         |       | $ | (52    | )      |   | $ | 1,080  |         |  
|                                                              |                                  |   |                                |        |              |   |        |        |         |   |             |       |              |   |        |         |       |   |        |        |   |   |        |        

18



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NOTE 15. SUBSEQUENT EVENTS

On July 2, 2004, the company entered into an agreement to acquire the assets of
WRMR-AM Cleveland, Ohio for approximately $10.0 million.  We anticipate this transaction to close in the first quarter of 2005.

On July 2, 2004, the company entered into an agreement to exchange the assets of
its radio stations KHNR-AM and KHCM-AM in Honolulu, Hawaii for KGMZ-FM in Honolulu, Hawaii.  We anticipate this transaction to close in the fourth quarter of 2004.

On July 30, 2004, the company acquired the assets of Christianjobs.com for approximately $250,000.

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

The following discussion and
analysis of our financial condition and results of operations should be read in
conjunction with the consolidated financial statements and related notes
included elsewhere in this report. Our consolidated financial statements are not
directly comparable from period to period because of our acquisition and
disposition of radio stations and certain assets of other media
businesses.

We believe that we are the
largest U.S. radio broadcasting company, measured by number of stations and
audience coverage, providing programming targeted at audiences interested in
religious and family themes. Our core business is the ownership and operation of
radio stations in large metropolitan markets. Upon completion of all announced
transactions, we will own and/or operate a national portfolio of 99 radio stations in 37 markets, including 61 stations
in 23 of the top 25 markets, which consists of 30 FM stations and 69 AM stations. Upon
completion of all pending transactions, we will be one of only four commercial
radio broadcasters with radio stations in all of the top 10 U.S. markets. We are the sixth largest operator measured by
number of stations overall and the third largest operator measured by number of owned
stations in the top 25 markets. Management believes that we are the fourteenth
largest U.S. radio broadcaster measured by net broadcasting revenue for the year
ended December 31, 2003.

We also own Salem Radio Network®, which
is a developer, producer and syndicator of religious and family issues
oriented talk, news and music programming with approximately 1,600 affiliated radio stations. In addition, we
own complementary Internet and publishing businesses which target our radio audiences.

We maintain a website at
http://www.salem.cc. Our annual reports on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and any amendments to those reports are
available free of charge through our website as soon as reasonably practicable
after those reports are electronically filed or furnished to the SEC.

Our business strategy is to
expand and improve our national radio platform in order to deliver compelling
content to audiences interested in religious and family issues. We primarily
program our stations with our Christian teaching and talk format, which is talk
programming with religious and family themes. We also feature
news/talk and contemporary Christian music formats. Salem Radio Network®
supports our strategy by allowing us to reach listeners in markets where we do not own
or operate radio stations.

Historically, our principal
sources of revenue have been:

    the
sale of block program time, both to national and local program
producers,
          the
sale of advertising time on our radio stations, both to national and local
advertisers,
and
          the
sale of advertising time on our national radio network.

Our broadcasting revenue is
affected primarily by the program rates our radio stations charge and by the
advertising rates our radio stations and networks charge. The rates for block
programming time are based upon our stations ability to attract audiences that will
support the program producers through contributions and purchases of their
products. Advertising rates are based upon the demand for advertising time,
which in turn is based on our stations and networks ability to produce results
for their advertisers. Historically, we have not subscribed to traditional
audience measuring services. Instead, we have marketed ourselves to advertisers
based upon the responsiveness of our audience. In selected markets we subscribe
to a ratings report service offered by Arbitron®, which provides quarterly reports to measure a radio stations
audience share in the demographic groups targeted by advertisers. Each of our
radio stations and our network has a pre-determined amount of time that
it makes available for block programming and/or advertising, which may vary at
different times of the day.

19



---

As is typical in the radio
broadcasting industry, our second and fourth quarter advertising revenue
generally exceeds our first and third quarter advertising revenue. This seasonal
fluctuation in advertising revenue corresponds generally with quarterly fluctuations
in the retail advertising industry. Quarterly
revenue from the sale of block program time does not tend to vary, however,
since program rates are generally set annually.

Our cash flow is affected by
the transition period experienced by radio stations when, due to the nature of
the radio station, our plans for the market and other circumstances, we find it
beneficial to change its format. This transition period is when we
develop a radio stations customer and listener base. During this period, a
station will typically generate negative or insignificant cash flow.

In the broadcasting
industry, radio stations often utilize trade or barter agreements to exchange
advertising time for goods or services (such as other media advertising, travel
or lodging) in lieu of cash. In order to preserve the sale of our advertising
time for cash, we generally enter into trade agreements only if the goods or
services bartered to us will be used in our business. We have minimized our use
of trade agreements and have generally sold most of our advertising time for
cash. In 2003, we sold 94% of our advertising time for cash. In addition, it is
our general policy not to preempt advertising paid for in cash with advertising
paid for in trade.

The primary operating
expenses incurred in the ownership and operation of our radio stations include: (i)
employee salaries, commissions and related employee benefits and taxes, (ii) facility expenses,
such as rent, insurance and utilities, (iii) promotional expenses and (iv) music
license fees. In addition to these expenses, our
networks incur programming costs and lease expenses for satellite communication
facilities. We also incur and will continue to incur significant
depreciation, amortization and interest expense as a result of completed and
future acquisitions of radio stations and existing and future borrowings.

Salem Web Network, our
Internet division, earns its revenue from sales of streaming services, sales of
banner advertising and sponsorships on the Internet, and, to a lesser extent,
sales of software and software support contracts. Salem Publishing, our publishing business,
earns its revenue by selling advertising in and subscriptions to its
publications. The revenue and related operating expenses of these businesses are
reported as other media on our consolidated statements of operations.

SAME STATION DEFINITION

In the following discussion
of our results of operations, we compare our results between periods on an as
reported basis (that is, the results of operations of all radio stations and
network formats owned or operated at any time during either period) and on a
same station basis. With regard to fiscal quarters, we include in our same
station comparisons the results of operations of radio stations and networks
that we own or operate in the same format during that quarter, as well as the
corresponding quarter of the prior year. Same station results for a full year
are based on the sum of the same station results for the four quarters of that
year.

20



---



RESULTS OF OPERATIONS

|                                                              |                                                |   |                        |        |      |                        |          |        |   |      |        |       |   |          |   |        |         |   |   |        |         |   |  |        |       |   |  
|------------------------------------------------------------- | ---------------------------------------------- | - | ---------------------- | ------ | ---- | ---------------------- | -------- | ------ | - | ---- | ------ | ----- | - | -------- | - | ------ | ------- | - | - | ------ | ------- | - |  | ------ | ----- | - | -
|                                                              |                                                |   | Three Months Ended     |        |      | Six Months Ended      
|                                                              |                                                |   | June 30,               |        |      | June 30,              
|                                                              |                                                |   |                        |        |      |                       
|                                                              |                                                |   | 2003                   |        | 2004 |                        | % Change |        |   | 2003 |        | 2004  |   | % Change
|                                                              |                                                |   |                        |        |      |                        |          |        |   |      |        |       |   |         
|                                                              |                                                |   | (Dollars in thousands) |        |      | (Dollars in thousands) |         
|                                                              |                                                |   |                        |        |      |                        |         
|Gross broadcasting revenue                                    |                                                | $ | 47,397                 |        |      | $                      | 52,197   |        |   |      | 10.2   |       | % |          | $ | 89,435 |         |   | $ | 99,251 |         |   |  | 11.0   |       | %
|Less agency commissions                                       |                                                |   | 3,951                  |        |      |                        | 4,397    |        |   |      | 11.3   |       | % |          |   | 7,301  |         |   |   | 8,294  |         |   |  | 13.6   |       | %
|                                                              |                                                |   |                        |        |      |                        |          |        |   |      |        |       |   |         
|Net broadcasting revenue                                      |                                                |   | 43,428                 |        |      |                        | 47,800   |        |   |      | 10.1   |       | % |          |   | 82,134 |         |   |   | 90,957 |         |   |  | 10.7   |       | %
|Other media revenue                                           |                                                |   | 2,234                  |        |      |                        | 2,352    |        |   |      | 5.3    |       | % |          |   | 4,155  |         |   |   | 4,298  |         |   |  | 3.4    |       | %
|                                                              |                                                |   |                        |        |      |                        |          |        |   |      |        |       |   |         
|Total revenue                                                 |                                                |   | 45,662                 |        |      |                        | 50,152   |        |   |      | 9.8    |       | % |          |   | 86,289 |         |   |   | 95,255 |         |   |  | 10.4   |       | %
|Operating expenses:                                          
|                                                              | Broadcasting operating expenses                |   |                        | 27,505 |      |                        |          | 28,875 |   |      |        | 5.0   |   | %        |   |        | 53,843  |   |   |        | 56,419  |   |  |        | 4.8   |   | %
|                                                              | Costs of denied tower site and license upgrade |   |                        |       |      |                        |          |       |   |      |        | N/A   |   |          |   |        | 2,202   |   |   |        |        |   |  |        | N/A   |   |  
|                                                              | Other media operating expenses                 |   |                        | 2,116  |      |                        |          | 2,030  |   |      |        | (4.1  | ) | %        |   |        | 3,976   |   |   |        | 4,192   |   |  |        | 5.4   |   | %
|                                                              | Corporate expenses                             |   |                        | 4,027  |      |                        |          | 4,247  |   |      |        | 5.5   |   | %        |   |        | 8,071   |   |   |        | 8,551   |   |  |        | 5.9   |   | %
|                                                              | Depreciation & amortization                    |   |                        | 3,070  |      |                        |          | 3,129  |   |      |        | 1.9   |   | %        |   |        | 6,095   |   |   |        | 6,226   |   |  |        | 2.1   |   | %
|                                                              |                                                |   |                        |        |      |                        |          |        |   |      |        |       |   |         
|                                                              | Operating expenses                             |   |                        | 36,718 |      |                        |          | 38,281 |   |      |        | 4.3   |   | %        |   |        | 74,187  |   |   |        | 75,388  |   |  |        | 1.6   |   | %
|                                                              |                                                |   |                        |        |      |                        |          |        |   |      |        |       |   |         
|Operating income                                              |                                                |   | 8,944                  |        |      |                        | 11,871   |        |   |      | 32.7   |       | % |          |   | 12,102 |         |   |   | 19,867 |         |   |  | 64.2   |       | %
|Other expense:                                               
|                                                              | Interest income                                |   |                        | 17     |      |                        |          | 93     |   |      |        | 447.1 |   | %        |   |        | 171     |   |   |        | 122     |   |  |        | (28.7 | ) | %
|                                                              | Interest expense                               |   |                        | (5,600 | )    |                        |          | (5,366 | ) |      |        | (4.2  | ) | %        |   |        | (12,236 | ) |   |        | (11,036 | ) |  |        | (9.8  | ) | %
|                                                              | Loss on early redemption of long-term debt     |   |                        |       |      |                        |          | (6,588 | ) |      |        | N/A   |   |          |   |        | (6,440  | ) |   |        | (6,588  | ) |  |        | 2.3   |   | %
|                                                              | Gain on sale of assets                         |   |                        |       |      |                        |          | 405    |   |      |        | N/A   |   |          |   |        |        |   |   |        | 181     |   |  |        | N/A   |   |  
|                                                              | Other expense, net                             |   |                        | (92    | )    |                        |          | (126   | ) |      |        | 37.0  |   | %        |   |        | (161    | ) |   |        | (237    | ) |  |        | 47.2  |   | %
|                                                              |                                                |   |                        |        |      |                        |          |        |   |      |        |       |   |         
|Income (loss) before income taxes and discontinued operations |                                                |   | 3,269                  |        |      |                        | 289      |        |   |      | (91.2  | )     | % |          |   | (6,564 | )       |   |   | 2,309  |         |   |  | (135.2 | )     | %
|Provision (benefit) for income taxes                          |                                                |   | 1,427                  |        |      |                        | 117      |        |   |      | (91.8  | )     | % |          |   | (2,318 | )       |   |   | 894    |         |   |  | (138.6 | )     | %
|                                                              |                                                |   |                        |        |      |                        |          |        |   |      |        |       |   |         
|Income (loss) before discontinued operations                  |                                                |   | 1,842                  |        |      |                        | 172      |        |   |      | (90.7  | )     | % |          |   | (4,246 | )       |   |   | 1,415  |         |   |  | (133.3 | )     | %
|Discontinued operations, net of tax                           |                                                |   |                       |        |      |                        | (335     | )      |   |      | N/A    |       |   |          |   |       |         |   |   | (335   | )       |   |  | N/A    |       | %
|                                                              |                                                |   |                        |        |      |                        |          |        |   |      |        |       |   |         
|Net income (loss)                                             |                                                | $ | 1,842                  |        |      | $                      | (163     | )      |   |      | (108.8 | )     | % |          | $ | (4,246 | )       |   | $ | 1,080  |         |   |  | (125.4 | )     | %
|                                                              |                                                |   |                        |        |      |                        |          |        |   |      |        |       |   |         

21



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The following table presents selected financial data for the periods indicated as a percentage
of total revenue

|                                                              |                                               |  |                    |     |                  |   |      |     |      |   |   |  |     |     |   |   |  |     |     |   |  
|------------------------------------------------------------- | --------------------------------------------- |  | ------------------ | --- | ---------------- | - | ---- | --- | ---- | - | - |  | --- | --- | - | - |  | --- | --- | - | -
|                                                              |                                               |  | Three Months Ended |     | Six Months Ended
|                                                              |                                               |  | June 30,           |     | June 30,        
|                                                              |                                               |  |                    |     |                 
|                                                              |                                               |  | 2003               |     | 2004             |   | 2003 |     | 2004 |   |  
|                                                              |                                               |  |                    |     |                  |   |      |     |     
|                                                             
|Net broadcasting revenue                                      |                                               |  | 95                 |     | %                |   |      | 95  |      | % |   |  | 95  |     | % |   |  | 95  |     | %
|Other media revenue                                           |                                               |  | 5                  |     | %                |   |      | 5   |      | % |   |  | 5   |     | % |   |  | 5   |     | %
|                                                              |                                               |  |                    |     |                  |   |      |     |      |   |  
|Total revenue                                                 |                                               |  | 100                |     | %                |   |      | 100 |      | % |   |  | 100 |     | % |   |  | 100 |     | %
|Operating expenses:                                          
|                                                              | Broadcasting operating expenses               |  |                    | 60  |                  | % |      |     | 58   |   | % |  |     | 62  |   | % |  |     | 59  |   | %
|                                                              | Cost of denied tower site and license upgrade |  |                    |    |                  | % |      |     |     |   | % |  |     | 3   |   | % |  |     |    |   | %
|                                                              | Other media operating expenses                |  |                    | 5   |                  | % |      |     | 4    |   | % |  |     | 5   |   | % |  |     | 4   |   | %
|                                                              | Corporate expenses                            |  |                    | 9   |                  | % |      |     | 8    |   | % |  |     | 9   |   | % |  |     | 9   |   | %
|                                                              | Depreciation & amortization                   |  |                    | 7   |                  | % |      |     | 6    |   | % |  |     | 7   |   | % |  |     | 7   |   | %
|                                                              |                                               |  |                    |     |                  |   |      |     |      |   |  
|                                                              | Operating expenses                            |  |                    | 80  |                  | % |      |     | 76   |   | % |  |     | 86  |   | % |  |     | 79  |   | %
|                                                              |                                               |  |                    |     |                  |   |      |     |      |   |  
|Operating income                                              |                                               |  | 20                 |     | %                |   |      | 24  |      | % |   |  | 14  |     | % |   |  | 21  |     | %
|Other expense:                                               
|                                                              | Interest income                               |  |                    |    |                  | % |      |     |     |   | % |  |     |    |   | % |  |     |    |   | %
|                                                              | Interest expense                              |  |                    | (12 | )                | % |      |     | (11  | ) | % |  |     | (14 | ) | % |  |     | (12 | ) | %
|                                                              | Loss on early redemption of long-term debt    |  |                    |    |                  | % |      |     | (13  | ) | % |  |     | (7  | ) | % |  |     | (7  | ) | %
|                                                              | Gain on sale of assets                        |  |                    |    |                  | % |      |     | 1    |   | % |  |     |    |   | % |  |     |    |   | %
|                                                              | Other expense, net                            |  |                    |    |                  | % |      |     |     |   | % |  |     |    |   | % |  |     |    |   | %
|                                                              |                                               |  |                    |     |                  |   |      |     |      |   |  
|Income (loss) before income taxes and discontinued operations |                                               |  | 7                  |     | %                |   |      | 1   |      | % |   |  | (8  | )   | % |   |  | 2   |     | %
|Provision (benefit) for income taxes                          |                                               |  | 3                  |     | %                |   |      |    |      | % |   |  | (3  | )   | % |   |  | 1   |     | %
|                                                              |                                               |  |                    |     |                  |   |      |     |      |   |  
|Income (loss) before discontinued operations                  |                                               |  | 4                  |     | %                |   |      |    |      | % |   |  | (5  | )   | % |   |  | 1   |     | %
|Discontinued operations, net of tax                           |                                               |  |                   |     | %                |   |      | (1  | )    | % |   |  |    |     | % |   |  |    |     | %
|Net income (loss)                                             |                                               |  | 4                  |     | %                |   |      |    |      | % |   |  | (5  | )   | % |   |  | 1   |     | %
|                                                              |                                               |  |                    |     |                  |   |      |     |      |   |  

Three months ended June 30, 2004 compared to three months ended June 30, 2003

NET BROADCASTING
REVENUE.      Net broadcasting revenue
increased $4.4 million or 10.1% to $47.8 million for the quarter ended June
30, 2004 from $43.4 million for the same quarter of the prior year. On a
same station basis, net broadcasting revenue improved $4.0 million or 9.4% to $46.7 million
for the quarter ended June 30, 2004 from $42.7 million for the same quarter
of the prior year. The growth is primarily attributable to an increase in net
broadcasting revenue from our music stations acquired since the middle of 2000,
increases in national spot revenue programming revenue, the acquisitions of radio stations during 2003
and an increase in advertising rates. Revenue from advertising as a percentage
of our gross broadcasting revenue increased to 55.0% for the quarter ended June 30, 2004 from 52.4%
for the same quarter of the prior year. Revenue from block program time as a
percentage of our gross broadcasting revenue decreased to 31.9% for the quarter
ended June 30, 2004 from 34.7% for the same quarter of the prior year. This
change in our revenue mix is primarily due to the growth of our contemporary
Christian music format as well as our continued efforts to develop more
advertising revenue in all of our markets.

OTHER MEDIA REVENUE.      Other media revenue increased $0.2 million or 5.3% to $2.4 million for the
quarter ended June 30, 2004 from $2.2 million for the same amount of the prior year.  The increase is due primarily
to a growth in print and Internet advertising revenue.

22



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BROADCASTING OPERATING
EXPENSES.       Broadcasting operating
expenses increased $1.4 million or 5.0% to $28.9 million for the quarter ended
June 30, 2004 from $27.5 million for the same quarter of the prior year. On
a same station basis, broadcasting operating expenses increased $0.4 million or
1.4% to $27.6 million for the quarter ended June 30, 2004 from $27.2
million for the same quarter of the prior year. The increase is primarily due to
incremental selling expenses incurred to produce the increased revenue in the
period. Additionally, we have incurred expenses related to the launch of stations
acquired in 2003.

OTHER MEDIA OPERATING
EXPENSES.      Other media operating expenses
decreased $0.1 million or 4.1% to $2.0 million for the quarter ended June 30, 2004
from $2.1 million for the same quarter in the prior year. The decrease
is attributable primarily to reduced rent expense associated with the closing of one of our Salem
Web Network offices in the first quarter of 2004.



CORPORATE EXPENSES.      Corporate expenses increased $0.2
million or 5.5% to $4.2 million in the quarter ended June 30, 2004 from
$4.0 million in the same quarter of the prior year, primarily due increases in salaries and an increase in accrued executive bonuses.

DEPRECIATION AND
AMORTIZATION.      Depreciation and
amortization expense remained constant at $3.1 million for the quarters ended June 30, 2004  and 2003.

OTHER INCOME (EXPENSE).      Interest income of approximately $93,000 and $17,000
for the quarters ended June 30, 2004 and 2003, respectively, is primarily from interest earned on
excess cash. Interest expense decreased $0.2 million or 4.2% to $5.4 million
for the quarter ended June 30, 2004 from $5.6 million for the same quarter
of the prior year. The decrease is primarily due to savings related to our interest rate swap agreements of $0.9 million in
interest for the quarter ended June 30, 2004 compared to savings of $0.7 million in the same period of the
prior year and the Redemption. Gain on sale of assets of $0.4 million for the quarter ended June 30, 2004 is due
to a brokerage fee earned from the sale of WGST-FM, Atlanta, Georgia.
Loss on early retirement of debt of $6.6 million during the quarter ended June 30, 2004
relates to the premium paid and the write-off of unamortized bond issues cost associated with the
Redemption. Other expense, net was $0.1 million
for the quarters ended June 30, 2004 and 2003, and was related primarily to
bank commitment fees associated with our credit facilities.

PROVISION FOR INCOME
TAXES.      Provision for income taxes as a
percentage of income before income taxes (that is, the effective tax rate) was
40.4% for the quarter ended June 30, 2004 as compared to 43.7% for the same quarter of
the prior year. The decrease is primarily due to changes in the California tax code
that began allowing the utilization of California net operating loss carryforwards
in 2004 and the acquisition of radio stations and other media businesses in states with lower tax rates.
For the quarters ended June 30, 2004 and 2003 the effective
tax rates differ from the federal statutory income rate of 35.0% primarily due
to the effect of state income taxes and certain expenses that are not deductible
for tax purposes.

LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX.
      Loss from discontinued operations was approximately $0.3 million
net of income taxes for the quarter ended June 30, 2004. This amount relates to an increase in a
contingent liability arising from the sale of WYGY-FM, Cincinnati, Ohio, which was sold on September 30, 2002 for $45.0 million.

NET INCOME (LOSS).
      We recognized net loss of $0.2 million
for the quarter ended June 30, 2004 as compared to net a income of $1.8 million for the same quarter of the prior year.
The variance is due primarily to the loss on early redemption of long-term debt of $6.6 million and loss from discontinued
operations, net of tax of $0.3 million in the quarter ended June 30, 2004, partially offset by increased operating income of $2.9
million, a gain on sale of assests of $0.4 million in the quarter ended June 30, 2004, and a decrease in provision for income
taxes of $0.3 million.

Six months ended June 30, 2004 compared to six months ended June 30, 2003

NET BROADCASTING
REVENUE.      Net broadcasting revenue
increased $8.9 million or 10.7% to $91.0 million for the six months ended June
30, 2004 from $82.1 million for the same period of the prior year. On a
same station basis, net broadcasting revenue improved $7.9 million or 9.7% to $89.3 million
for the six months ended June 30, 2004 from $81.4 million for the same period
of the prior year. The growth is primarily attributable to an increase in net
broadcasting revenue from our music stations acquired since the middle of 2000,
increases in national spot and  programming revenue and the acquisitions of radio stations during 2003.
Revenue from advertising as a percentage of our gross broadcasting revenue increased to 53.0% for the six months ended June 30, 2004 from 50.9%
for the same period of the prior year. Revenue from block program time as a
percentage of our gross broadcasting revenue decreased to 33.9% for the six months
ended June 30, 2004 from 36.3% for the same period of the prior year. This
change in our revenue mix is primarily due to the growth of our contemporary
Christian music format as well as our continued efforts to develop more
advertising revenue in all of our markets.

23



---

OTHER MEDIA REVENUE.      Other media revenue increased $0.1 million,
or 3.4% to $4.3 million from $4.2 million for the same period of the prior year due to increased print and Internet advertising revenue.

BROADCASTING OPERATING
EXPENSES.       Broadcasting operating
expenses increased $2.6 million or 4.8% to $56.4 million for the six months ended
June 30, 2004 from $53.8 million for the same period of the prior year. On
a same station basis, broadcasting operating expenses increased $0.8 million or
1.6% to $54.4 million for the six months ended June 30, 2004 from $53.6
million for the same period of the prior year. The increase is primarily due to
incremental selling expenses incurred to produce the increased revenue in the
period. Additionally, we have incurred expenses related to the launch of stations
acquired in 2003.

OTHER MEDIA OPERATING
EXPENSES.      Other media operating expenses
increased $0.2 million or 5.4% to $4.2 million for the six months ended June 30, 2004
from $4.0 million for the same period in the prior year. The increase
is attributable primarily to costs associated with the early termination of a lease of one of our Salem
Web Network offices and increased circulation costs at Salem Publishing in the first quarter of 2004.

CORPORATE EXPENSES.      Corporate expenses increased $0.5
million or 5.9% to $8.6 million in the six months ended June 30, 2004 from
$8.1 million in the same period of the prior year, primarily due to increases in salaries and an increase in accrued executive bonuses.

DEPRECIATION AND
AMORTIZATION.      Depreciation and
amortization expense increased $0.1 million or 2.1% to $6.2 million for the
six months ended June 30, 2004 from $6.1 million for the same period of the
prior year. The increase is due principally to the depreciation
associated with the acquisitions of radio stations during 2003.

OTHER INCOME (EXPENSE).      Interest income of approximately $0.1 million
for the six months ended June 30, 2004 is primarily from interest earned on
excess cash. Interest income of $0.2 million for the six months ended June 30, 2003
is primarily from interest earned on the cash which was held in a trust account
that was used to redeem all of our 91⁄2% Notes and from interest earned on
excess cash. Interest expense decreased $1.2 million or 9.8% to $11.0 million
for the six months ended June 30, 2004 from $12.2 million for the same period
of the prior year. The decrease is primarily due to savings related to our interest rate swap agreements of $1.9 million in
interest for the six months ended June 30, 2004 compared to savings of $1.5 million in the same period of the
prior year and savings due to the refinancing of our 91⁄2% Notes. Additionally,
as part of the refinancing of our 91⁄2% Notes, both the 91⁄2% Notes and
the 73⁄4% Notes were outstanding until January 22, 2003, resulting in an
additional $0.6 million of interest expense in the prior year. Gain on sale of
assets of $0.2 million for the six months ended June 30, 2004 is primarily due to a brokerage fee of $0.4 million earned from the sale of WGST-FM,
Atlanta, Georgia, partially offset by a loss of $0.2 million from the disposition of certain studio
and production equipment to a company owned by our Chairman and CEO in connection with
the early termination of a lease. Loss on early retirement of debt of $6.6 million during the six months ended June 30, 2004
relates to the premium paid and the write-off of unamortized bond issues cost associated with the
Redemption. Other expense, net was $0.2 million for the six months ended June 30, 2004
and 2003, and was related primarily to bank commitment fees associated with our credit facilities.

PROVISION (BENEFIT) FOR INCOME
TAXES.      Provision for income taxes as a
percentage of income before income taxes (that is, the effective tax rate) was
38.7% for the six months ended June 30, 2004 as compared to a benefit of 35.3% for the same period of
the prior year. The increase was primarily due to the increase in reserves against
old net operating loss carryforwards that are about to expire within the short-term and
net operating loss carryforwards in North Carolina where we no longer have operations
due to the relocation of OnePlace.com, one of our Salem Web Network businesses.
For the six months ended June 30, 2004 and 2003 the effective
tax rates differ from the federal statutory income rate of 35.0% primarily due
to the effect of state income taxes and certain expenses that are not deductible
for tax purposes.

LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX.
      Loss from discontinued operations was approximately $0.3 million
net of income taxes for the six months ended June 30, 2004. This amount relates to an increase in a
contingent liability arising from the sale of WYGY-FM, Cincinnati, Ohio, which was sold on September 30, 2002 for $45.0 million.

NET INCOME (LOSS).
      We recognized net income of $1.1 million
for the six months ended June 30, 2004 as compared to net a loss of $4.2 million for the same period of the prior year.
The variance is primarily due to an increase in operating income of $7.8 million and a reduction in interest expense of $1.2
million, partially offset by an increase in provision for income taxes of $3.2 million and a loss from discontinued operations of
$0.3 million during the six months ended June 30, 2004.

24



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NON-GAAP FINANCIAL MEASURES

The performance of a radio
broadcasting company is customarily measured by the ability of its stations to
generate station operating income. We define station operating income as net
broadcasting revenue less broadcasting operating expenses.

Station operating income is
not a measure of performance calculated in accordance with GAAP; as a result it
should be viewed as a supplement to and not a substitute for our results of
operations presented on the basis of GAAP. Management believes that station
operating income is a useful non-GAAP financial measure to investors, when considered in conjunction with operating
income, the most directly comparable GAAP financial measure, because it is
generally recognized by the radio broadcasting industry as a tool in measuring
performance and in applying valuation methodologies for companies in the media,
entertainment and communications industries. This measure is used by investors
and analysts who report on the industry to provide
comparisons between broadcasting groups. Additionally, our management uses
station operating income as one of the key measures of operating efficiency and
profitability. Station operating income does not purport to represent cash
provided by operating activities. Our statement of cash flows presents our cash
flow activity and our income statement presents our historical performance
prepared in accordance with GAAP. Our station operating income is not
necessarily comparable to similarly titled measures employed by other
companies.

Three months ended June 30, 2004 compared to the three months ended June 30, 2003

STATION OPERATING
INCOME.       Station operating income increased
$3.0 million or 18.9% to $18.9 million for the quarter ended June 30, 2004
from $15.9 million for the same quarter of the prior year. As a percentage of
net broadcasting revenue, station operating income increased to 39.6% for the
quarter ended June 30, 2004 from 36.7% for the same quarter of the prior
year. The percentage increase is primarily attributable to the growth of radio
stations acquired during 2002 and 2003 that previously operated with formats
other than their current format and the growth of our contemporary
Christian music format. Acquired and reformatted radio stations typically
produce low margins during the first several years following acquisition or
conversion. Station operating income margins improve as we implement scheduled
program rate increases and increase advertising revenue on our stations. On a
same station basis, station operating income improved $3.6 million or 23.4% to
$19.1 million for the quarter ended June 30, 2004 from $15.5 million for
the same quarter of the prior year. As a percentage of same station net
broadcast revenue, same station operating income increased to 40.9% for the
quarter ended June 30, 2004 from 36.2% for the same quarter of the prior
year.

Six months ended June 30, 2004 compared to the six months ended June 30, 2003

STATION OPERATING
INCOME.       Station operating income increased
$6.2 million or 22.1% to $34.5 million for the six months ended June 30, 2004
from $28.3 million for the same period of the prior year. As a percentage of
net broadcasting revenue, station operating income increased to 38.0% for the
six months ended June 30, 2004 from 34.4% for the same period of the prior
year. The percentage increase is primarily attributable to the growth of radio
stations acquired during 2002 and 2003 that previously operated with formats
other than their current format and the growth of our contemporary
Christian music format. Acquired and reformatted radio stations typically
produce low margins during the first several years following acquisition or
conversion. Station operating income margins improve as we implement scheduled
program rate increases and increase advertising revenue on our stations. On a
same station basis, station operating income improved $7.1 million or 25.2% to
$34.9 million for the six months ended June 30, 2004 from $27.8 million for
the same period of the prior year. As a percentage of same station net
broadcast revenue, same station operating income increased to 39.0% for the
six months ended June 30, 2004 from 34.2% for the same period of the prior
year.

The following table provides
a reconciliation of station operating income (a non-GAAP financial measure) to
operating income (as presented in our financial statements) for the three and six months
ended June 30, 2003 and 2004:

|                               |                                                          |   |                                   |        |   |                                 |        |        |      |   |        |        |   |   |        |        |  
|------------------------------ | -------------------------------------------------------- | - | --------------------------------- | ------ | - | ------------------------------- | ------ | ------ | ---- | - | ------ | ------ | - | - | ------ | ------ | -
|                               |                                                          |   |                                  
|                               |                                                          |   | Three Months Ended June
      30, |        |   | Six Months Ended June
      30, |       
|                               |                                                          |   |                                   |        |   |                                 |       
|                               |                                                          |   |                                   |       
|                               |                                                          |   | 2003                              |        |   | 2004                            |        |        | 2003 |   |        | 2004   |  
|                               |                                                          |   |                                   |        |   |                                 |        |        |      |   |        |        |  
|                               |                                                          |   | (Dollars in
      thousands)     
|                               |                                                          |   |                                  
|Station
      operating income |                                                          | $ | 15,923                            |        |   | $                               | 18,925 |        |      | $ | 28,291 |        |   | $ | 34,538 |       
|                               | Plus other
      media revenue                           |   |                                   | 2,234  |   |                                 |        | 2,352  |      |   |        | 4,155  |   |   |        | 4,298  |  
|                               | Less cost
      of denied tower site and license upgrade |   |                                   |       |   |                                 |        |       |      |   |        | (2,202 | ) |   |        |       |  
|                               | Less other
      media operating expenses                |   |                                   | (2,116 | ) |                                 |        | (2,030 | )    |   |        | (3,976 | ) |   |        | (4,192 | )
|                               | Less
      depreciation and amortization                 |   |                                   | (3,070 | ) |                                 |        | (3,129 | )    |   |        | (6,095 | ) |   |        | (6,226 | )
|                               | Less
      corporate expenses                            |   |                                   | (4,027 | ) |                                 |        | (4,247 | )    |   |        | (8,071 | ) |   |        | (8,551 | )
|                               |                                                          |   |                                   |        |   |                                 |        |        |      |   |        |        |   |   |       
|Operating
      income         |                                                          | $ | 8,944                             |        |   | $                               | 11,871 |        |      | $ | 12,102 |        |   | $ | 19,867 |       
|                               |                                                          |   |                                   |        |   |                                 |        |        |      |   |        |        |   |   |        |       

25



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CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES

The discussion and analysis
of our financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with
GAAP. The preparation of these financial statements requires management to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates, including those
related to allowance for doubtful accounts, acquisitions and upgrades of radio
station and network assets, goodwill and other intangible assets, income taxes,
and long-term debt and debt covenant compliance. We base our estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

We believe the following
accounting policies and the related judgments and estimates are our critical
accounting policies, which affect the preparation of our consolidated financial
statements.

Accounting for acquisitions and upgrades of radio station
and network assets

Most of our radio station
acquisitions have been acquisitions selected assets and not of businesses. Such asset
acquisitions have consisted primarily of the FCC licenses to broadcast in a
particular market. We often do not acquire the existing format, or we change the
format upon acquisition when we find it beneficial. As a result, a substantial
portion of the purchase price for the assets of a radio station is allocated to
the FCC license. It is generally our policy to retain third-party appraisers to
value radio stations, networks or other media properties under consideration for
acquisition. The allocations assigned to acquired FCC licenses and other assets
are subjective by their nature and require our careful consideration and
judgment. We believe the allocations represent appropriate estimates of the fair
value of the assets acquired. As part of the valuation and appraisal process,
the third-party appraisers prepare reports which assign values to the various
asset categories in our financial statements. Our management reviews these
reports and determines the reasonableness of the assigned values used to record
the acquisition of the radio station, network or other media properties at the
close of the transaction.

From time to time we
undertake projects to upgrade our radio station technical facilities and/or FCC
licenses. Our policy is to capitalize costs up to the point where the project is
complete, at which point we transfer the costs to the appropriate fixed asset
and/or intangible asset categories. In certain cases where a projects
completion is contingent upon FCC or other regulatory approval, we assess the
probable future benefit of the asset at the time that it is recorded and monitor
it through the FCC or other regulatory approval process. In the event
the required approval is considered not probable, we write-off the capitalized
costs of the project. As of June 30, 2004, there was one significant upgrade
project with an aggregate amount of $0.7 million which is included in other
assets, in addition to several other projects aggregating an insignificant
amount.

Allowance for doubtful accounts

We maintain allowances for
doubtful accounts for estimated losses resulting from the inability of our
customers to make required payments. An analysis is performed by applying
various percentages based on the age of the receivable and other
subjective and historical analysis. A considerable amount of judgment is
required in assessing the likelihood of ultimate realization of these
receivables including the current creditworthiness of each customer. If the
financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.

26



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Intangible assets

Under the Financial
Accounting Standards Boards rules, SFAS No. 141, Business Combinations, and
SFAS No. 142, Goodwill and Other Intangible Assets, we no longer amortize
goodwill and intangible assets deemed to have indefinite lives, but perform
annual impairment tests in accordance with these statements. We believe our FCC
licenses have indefinite lives under the new standard and accordingly
amortization expense is no longer recorded for our FCC licenses as well as
our goodwill. Other intangible assets continue to be amortized over their useful lives.

We perform an annual test of
impairment on our FCC licenses and our goodwill. These tests include comparing
the recorded values to the appraised values, calculations of discounted cash
flows, operating income and other analyses. As of June 30, 2004, based on
our application of the impairment rules, no impairment was recorded. The
assessment of the fair values of these assets and the underlying businesses are
estimates which require careful consideration and judgments by our management.
If conditions in the markets in which that our stations and other media
businesses operate or if the operating results of our stations and other media
businesses change or fail to develop as anticipated, our estimates of the fair
values may change in the future and result in impairment charges.

Valuation allowance (deferred taxes)

For financial reporting
purposes, the company has recorded a valuation allowance of $2.4 million as of
June 30, 2004, to offset a portion of the deferred tax assets related to the
state net operating loss carryforwards. Management regularly reviews our
financial forecasts in an effort to determine the realizability of the net
operating loss carryforwards for tax purposes. Accordingly, the valuation
allowance is adjusted periodically based on managements estimate of the benefit
the company will receive from such carryforwards.

Long-term debt and debt covenant compliance

Our classification of our
borrowings under our credit facility as long-term debt on our balance sheet is
based on our assessment that, under the borrowing restrictions and covenants in
our credit facility and after considering our projected operating results and
cash flows for the coming year, no principal payments will be required pursuant
to the credit agreement. These projections are estimates dependent upon a number of factors including developments in the
markets in which we are operating in and economic and political factors, among
other factors. Accordingly, thse projections are inherently uncertain and our actual results could differ from these estimates. Should our
actual results differ materially from these estimates, payments may become due
under our credit facility or it may become necessary to seek an amendment to our
credit facility. Based on our managements current assessment, we do not
anticipate principal payments becoming due under our credit facility or a
further amendment of our credit facility becoming necessary.

LIQUIDITY AND CAPITAL RESOURCES

We have historically
financed acquisitions through borrowings, including borrowings under credit
facilities and, to a lesser extent, from operating cash flow and selected asset
dispositions. We expect to fund future acquisitions from cash on hand,
proceeds from our debt and equity offerings, borrowings under the credit
facility and operating cash flow. We have
historically funded, and will continue to fund, expenditures for operations,
administrative expenses, capital expenditures and debt service required by our
credit facility and our senior subordinated notes from operating cash flow and
borrowings under our credit facility. We believe that cash on hand, cash flow
from operations, proceeds from our secondary equity offering and
borrowings under the credit facility will be sufficient to
permit us to meet our financial obligations, fund pending acquisitions and fund
operations for at least the next twelve months.

On May 5, 2004, we completed
a public offering of our Class A common stock. We used the net proceeds
of $65.7 million from this offering for working capital and general
corporate purposes, including the Redemption.

Cash. Cash and cash
equivalents was $12.9 million at June 30, 2004 and $5.6 million at
December 31, 2003. Working capital was $33.8 million at June 30, 2004.
The increase in cash and cash equivalents is due primarily to the net proceeds of $65.7 million from our May 5, 2004
public offering of our Class A common stock, offset by the Redemption. During the six months ended June 30, 2004, we
also borrowed an additional $15.0 million under our credit facility and used $16.9 million
to acquire the assets of two radio stations.

27



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Net cash provided by
operating activities increased to $16.2 million for the six months ended
June 30, 2004 compared to $10.1 million in the same period of the prior
year, primarily due to a $2.2 million write-off during the six months ended June 30, 2003 of costs related to a denied
tower site and license upgrade, an increase in operating income, lower interest expense
and improved accounts receivable collections, partially offset by a decrease
in accounts payable and accrued expenses.

Net cash used in investing
activities was $26.1 million for the six months ended June 30, 2004
compared to $5.1 million for the same period of the prior year. The increase is
due primarily to $16.9 million cash used to purchase the assets of two radio stations
in the six months ended June 30, 2004 compared to no acquisition activity
in the six months ended June 30, 2003, an increase in capital expenditures of $5.6 million and an increase
in deposits on radio stations of $0.7 million for the six months ended June 30, 2004 as compared to
the same six month period of 2003.

Net cash used in financing
activities was $17.2 million for the six months ended June 30, 2004
compared to $27.4 million for the same period of the prior year. The difference is primarily due to proceeds from
our follow-on equity offering of $65.7 million in May 2004 and net borrowings under our credit facility of $10.0 million
during the six months ended June 30, 2004 compared to net repayment of $27.0 million under our credit facility during
six months ended June 30, 2003. Additionally, we redeemed $55.6 million of our 9% Notes in May and June 2004 and paid a premium of $5.0 million
associated with the Redemption.

We have announced that we are
currently in the process of acquiring the assets of the following radio stations: (i)
WQBH-AM, Detroit, Michigan for $4.8 million, (ii) KPOI-FM and KHUI-FM, Honolulu, Hawaii for $3.7 million, (iii)
WRMR-AM, Cleveland, Ohio for $10.0 million and (iv) KIIS-AM, Thousand Oaks, California for $0.8 million. Although we
have not yet determined how we will be financing these acquisitions, we anticipate
that we will use borrowings under our credit facility or cash on hand.

Credit Facilities. Our
wholly-owned subsidiary, Salem Holding, is the borrower under our credit facilities the
credit facilities were amended and restated as of September 25, 2003 and include a
$75.0 million senior secured reducing revolving credit facility (revolving
credit facility) as well as a $75.0 million term loan facility (term
loan facility). The description of the credit facilities as set forth below
reflects the terms of the amendment and restatement. As of June 30, 2004, the
borrowing capacity and aggregate commitments under the credit facility was $75.0
million under each of the revolving credit facility and the term loan facility.
The amount we can borrow, however, is subject to certain restrictions as described
below. At June 30, 2004, $75.0 million was outstanding under the term loan facility and
$15.0 million was outstanding under the revolving credit facility. The
borrowing capacity under the revolving credit facility steps down in three 10%
increments commencing June 30, 2007, and matures on March 25, 2009. The term loan facility
matures on the earlier of March 25, 2010, or the date that is six months prior to
the maturity of any subordinated indebtedness of Salem or Salem Holding. The credit facilities
require us, under certain circumstances, to prepay borrowings under the credit facilities with excess cash flow and
the net proceeds from the sale of assets, the issuance of equity interests and
the issuance of subordinated notes. If we are required to make these
prepayments, our borrowing capacity and the aggregate commitments under the
facilities will be reduced, but such reduction shall not, in any event, reduce
the borrowing capacity and aggregate commitments under the facilitates below
$50.0 million.

Amounts outstanding under
the credit facilities bear interest at a rate based on, at Salem Holdings option, the banks
prime rate or LIBOR, in each case plus a spread. For purposes of determining the
interest rate under the revolving credit facility, the prime rate spread ranges
from 0.25% to 1.75%, and the LIBOR spread ranges from 1.5% to 3.0%. For the term
loan facility, the prime rate spread ranges from 1.25% to
1.75%, and the LIBOR spread ranges from 2.5% to 3.0%. In each case, the spread
is based on the total leverage ratio on the date of determination. At June 30, 2004,
the blended interest rate on amounts outstanding under the credit
facility was 3.93%. If an event of default occurs, the rate may increase by 2.0%.

The maximum amount that
Salem Holding may borrow under our credit facilities is also limited by a ratio of our
consolidated existing total adjusted funded debt to pro forma twelve-month cash
flow (the Total Leverage Ratio). Our credit facilities will allow us to adjust
our total debt as used in such calculation by the lesser of (i) 50% of the
aggregate purchase price of acquisitions of newly acquired non-religious
formatted radio stations that we reformat to a religious talk, news talk
or religious music format or (ii) $45.0 million, and the cash flow from such
stations will not be considered in the calculation of the ratio during the
period in which such acquisition gives rise to an adjustment to total debt. The
Total Leverage Ratio allowed under the credit facility was 7.25 to 1 as of
June 30, 2004. Beginning December 31, 2004, the maximum ratio will decline periodically
until December 31, 2006, at which point it will remain at 5.5 to 1 through March
2009. The Total Leverage Ratio under the credit facility at June 30, 2004,
on a pro forma basis, was 5.6 to 1, resulting in a borrowing availability of
approximately $59.9 million.

Our credit facilities contain
additional restrictive covenants customary for facilities of their size,
type and purpose which, with specified exceptions, limits our
ability to incur debt, have liens, enter into affiliate transactions, pay
dividends, consolidate, merge or effect certain asset sales, make specified
investments, acquisitions and loans and change the nature of our business. Our
credit facilities also require us to satisfy specified financial covenants, which
covenants require us on a consolidated basis to maintain specified financial
ratios and comply with certain financial tests, including ratios for maximum
leverage as described above, minimum interest coverage (not less than 1.5 to 1
through June 29, 2005 increasing in increments to 2.5 to 1 after June 30, 2008),
minimum debt service coverage (a static ratio of not less than 1.25 to 1), a
maximum consolidated senior leverage ratio (a static ratio of 3.0 to 1 prior to
the issuance of $50.0 million in new nubordinated notes, after any such issuance
the ratio shall not exceed 2.5 to 1), and minimum fixed charge coverage (a
static ratio of not less than 1.1 to 1). Salem and all of its subsidiaries, except
for Salem Holding, are guarantors of borrowings under the credit facilities. The credit
facilities are secured by liens on all of our and our subsidiaries assets and
pledges of all of the capital stock of our subsidiaries.

28



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As of June 30, 2004, and currently,
management believes we were and remain in compliance with all of the covenants under the
terms of the credit facility.

9% Senior Subordinated
Notes Due 2011.In September 2001, Salem Holding issued $150.0 million principal
amount of 9% Notes. Salem Holding used the net proceeds to repay approximately $145.5
million in borrowings under the credit facility. The indenture for the 9% Notes
contains restrictive covenants that, among other things, limit the incurrence of debt
by Salem Holding and its subsidiaries, the payment of dividends, the use of proceeds of
specified asset sales and transactions with affiliates.  During the second quarter of 2004, Salem
repurchased $55.6 million of the 9% Notes as part of the Redemption, leaving $94.4 million outstanding.
After giving effect to the Redemption, Salem Holding is required to
pay $8.5 million per year in interest on the outstanding 9% Notes. We and all of our
subsidiaries (other than Salem Holding) are guarantors of the 9% Notes.

As a result of the Redemption of $55.6 million of 9% Notes, we incurred a non-cash
charge in the second quarter of 2004 of approximately $1.6 million for the write-off of unamortized bond issue costs in addition
the $5.0 million premium paid in connection with this redemption. The $6.6 million was reported as loss on early redemption of
long-term debt in the Statement of Operations.

As of June 30, 2004, and currently,
management believes we were and remain in compliance with all of the covenants under the
indenture for the 9% Notes.

73⁄4% Senior Subordinated
Notes due 2010. In December 2002, Salem Holding issued $100.0 million principal
amount of 73⁄4% Notes. Salem Holding used the net proceeds to redeem the $100.0 million
91⁄2% Notes on January 22, 2003. The indenture for the 73⁄4% Notes contains
restrictive covenants that, among other things, limit the incurrence of debt by Salem Holding
and its subsidiaries, the payment of dividends, the use of proceeds of specified
asset sales and transactions with affiliates. Salem Holding is required to pay $7.8
million per year in interest on the 73⁄4% Notes. We and all of our subsidiaries
(other than Salem Holding) are guarantors of the 73⁄4% Notes.

As of June 30, 2004, and currently,
management believes we were and remain in compliance with all of the covenants under the
indenture for the 73⁄4% Notes.

Summary of Long-Term Debt Obligations

Long-term debt consisted of
the following at the balance sheet dates indicated:

|                                                                                    |                        |         |          |   |         |  
|----------------------------------------------------------------------------------- | ---------------------- | ------- | -------- | - | ------- | -
|                                                                                    | December 31,           |         | June 30,
|                                                                                    |                        |         |         
|                                                                                    | 2003                   |         | 2004    
|                                                                                    |                        |         |         
|                                                                                    | (Dollars in thousands) |         |         
|                                                                                    |                        |         |         
|Revolving
      line of credit under credit facility                                | $                      | 5,000   |          | $ | 15,000  |  
|Term loan
      under credit facility                                               |                        | 75,000  |          |   | 75,000  |  
|73⁄4% senior
      subordinated notes due 2010                                        |                        | 100,000 |          |   | 100,000 |  
|9% senior
      subordinated notes due 2011                                         |                        | 150,000 |          |   | 94,370  |  
|Fair value
      in excess of book value of debt hedged with interest rate
    swap |                        | 6,045   |          |   | 3,363   |  
|Capital
      leases and other loans                                                |                        | 61      |          |   | 53      |  
|                                                                                    |                        |         |          |  
|                                                                                    |                        | 336,106 |          |   | 287,786 |  
|Less
      current portion                                                          |                        | (15     | )        |   | (15     | )
|                                                                                    |                        |         |          |  
|                                                                                    | $                      | 336,091 |          | $ | 287,771 |  
|                                                                                    |                        |         |          |   |         |  

Off-Balance Sheet Arrangements

At June 30, 2004 and 2003,
Salem did not have any relationships with unconsolidated entities or
financial partnerships, such as entities often referred to as structured finance
or special purpose entities, which would have been established for the purpose
of facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes. As such, Salem is not materially exposed to any financing,
liquidity, market or credit risk that could arise if Salem had engaged in such
relationships.

29



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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK

DERIVATIVE INSTRUMENTS

We are exposed to
fluctuations in interest rates. We actively monitor these fluctuations and use
derivative instruments from time to time to manage the related risk. In
accordance with our risk management strategy, we use derivative instruments only
for the purpose of managing risk associated with an asset, liability, committed
transaction, or probable forecasted transaction that is identified by
management. Our use of derivative instruments may result in short-term gains or
losses and may increase volatility in our earnings.

At June 30, 2004, an
interest rate swap agreement with a notional principal amount of $66.0 million
was outstanding. This agreement relates to our 9% Notes. This agreement expires in 2011 when
the 9% Notes mature, and effectively swaps the 9.0% fixed interest rate on $66.0
million of the 9% Notes for a floating rate equal to the LIBOR rate plus 3.09%.
The estimated fair value of this swap agreement and the excess of fair value
over the book value of the debt hedged by the swap, based on current market
rates, were each $4.8 million at June 30, 2004. Changes in the fair value
of the swap and the changes in the fair value of debt being hedged are recorded
as part of interest expense. The fair value of the swap agreement is included
with long-term assets, and the fair value of the debt hedged by the swap is
recorded in long-term debt consistent with the maturity date of the swap and related debt.
Because this fair value hedge is effective (that is, the change in the fair
value of the hedge instrument is designed to be equal to the change in the fair
value of the item being hedged), there was no income statement effect relative
to the change in the fair value of the swap agreement. Interest expense for the
six months ended June 30, 2004 was reduced by $1.5 million as a result of
the difference between the 9.0% fixed interest rate on our debt and the floating
interest rate under the swap agreement, which was 4.31% for the six months
ended June 30, 2004.

We have
a second interest rate swap agreement with a notional principal amount of
$24.0 million. This agreement also relates to our 9% Notes. This agreement
expires in 2011 when the 9% Notes mature, and effectively swaps the 9.0% fixed
interest rate on $24.0 million of the 9% Notes for a floating rate equal to the
LIBOR rate plus 4.86%. The estimated fair value of this swap agreement
and the excess of fair value over the book value of the debt hedged by
the swap, based on current market rates, were each $(1.4) million at June 30,
2004. Changes in the fair value of the swap and the changes in the fair value of
debt being hedged are recorded as part of interest expense. The fair value of
the swap agreement is included with long-term liabilities, and the fair value of
the debt hedged by the swap is recorded in long-term debt consistent with the
maturity date of the swap and related debt. Because this fair value hedge is effective (that is,
the change in the fair value of the hedge instrument is designed to be equal to
the change in the fair value of the item being hedged), there was no income
statement effect relative to the change in the fair value of the swap agreement.
Interest expense for the six months ended June 30, 2004 was reduced by
$0.3 million as a result of the difference between the 9.0% fixed interest rate
on our debt and the floating interest rate under the swap agreement, which was
6.08% for the six months ended June 30, 2004.

30



---

MARKET RISK

In addition to the interest
rate swap agreements discussed above under Derivative Instruments, borrowings
under the credit facility are subject to market risk exposure, specifically to
changes in LIBOR and in the prime rate in the United States. At June 30,
2004, we had borrowed $75.0 million under the credit facility. As of June 30, 2004,
we could borrow up to an additional $59.9 million under the credit
facility. Amounts outstanding under the credit facility bear interest at a base
rate, at our option, of the banks prime rate or LIBOR, plus a spread. For
purposes of determining the interest rate under the revolving credit facility,
the prime rate spread ranges from 0.25% to 1.75%, and the LIBOR spread ranges
from 1.5% to 3.0%. At June 30, 2004, the blended interest rate on amounts
outstanding under the credit facility was 3.93%. At June 30, 2004, a
hypothetical 100 basis point increase in the prime rate would result in
additional interest expense of $0.9 million on an annualized basis.

In addition to the variable
rate debt disclosed above, we have fixed rate debt with a carrying value of
$194.4 million (relating to the outstanding 9% Notes and the 73⁄4% Notes) as of June 30,
2004, with an aggregate fair value of $204.5 million. We are exposed to changes
in the fair value of these financial instruments based on changes in the market
rate of interest on our debt. The ultimate value of these notes will be
determined by actual market prices, as all of these notes are tradable. We
estimate that a hypothetical 100 basis point increase in market interest rates
would result in a decrease in the aggregate fair value of the 9% Notes and 73⁄4%
Notes to approximately $194.5 million and a hypothetical 100 basis point
decrease in market interest rates would result in the increase of the fair value
of the 9% Notes and 73⁄4% Notes to approximately $215.2 million.



ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period
covered by this report, the company carried out an evaluation, under the
supervision and with the participation of the companys management, including
the companys Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the companys disclosure controls
and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act).
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the companys disclosure controls and procedures are
effective in timely alerting them to material information required to be
included in the companys periodic filings with the SEC.

There were no significant
changes in the companys internal controls over financial reporting or in other
factors that could significantly affect these internal controls subsequent to
the date of the most recent evaluation. Since there were no significant
deficiencies or material weaknesses in the companys internal controls over
financial reporting, the company did not take any corrective actions.

31



---

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Incident to our business
activities, we are party to a number of legal proceedings, lawsuits, arbitration
and other claims. Such matters are subject to many uncertainties and outcomes
are not predictable with assurance. Also, we maintain insurance which may
provide coverage for such matters. Consequently, our management is unable to
ascertain the ultimate aggregate amount of monetary liability or the financial
impact with respect to these matters, however, our management believes, at this
time, that the final resolution of these matters, individually and in the
aggregate, will not have a material adverse effect upon our financial position,
results of operations or cash flows.

ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS
AND ISSUER PURCHASES OF EQUITY SECURITIES

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the Annual Meeting of
Stockholders of the Company held on June 10, 2004, the following matters were
submitted to a vote of stockholders:

A.      Election of the following
nominees as directors of the company:

|   |                                                       |            |           |           |              
|-- | ----------------------------------------------------- | ---------- | --------- | --------- | -------------
|1. | Stuart W. Epperson was elected by a vote
      of     | 73,143,744 | for, with | 102,753   | withheld;    
|2. | Edward G. Atsinger III was elected by a
      vote of | 73,205,475 | for, with | 41,022    | withheld;    
|3. | Eric H. Halvorson was elected by a vote
      of      | 70,590,660 | for, with | 2,655,837 | withheld;    
|4. | Roland S. Hinz was elected by a vote
      of         | 73,179,145 | for, with | 67,352    | withheld;    
|5. | Donald P. Hodel was elected by a vote
      of        | 17,507,872 | for, with | 29,665    | withheld;    
|6. | Richard A. Riddle was elected by a vote
      of      | 73,213,738 | for, with | 32,759    | withheld;    
|7. | David Davenport was elected by a vote
      of        | 17,698,865 | for, with | 10,672    | withheld; and
|8. | Paul Pressler was elected by a vote
      of          | 73,212,681 | for, with | 33,816    | withheld.    

B.      To ratify the selection of Ernst & Young, LLP as the
companys independent auditors: 73,209,524 for, 35,869 against and 1,104 abstaining.

The total number of shares of Class A common stock outstanding as of
April 16, 2004, the record date for the Annual Meeting, was 17,990,417 and the total number of shares of Class B common stock
outstanding as of that date was 5,553,696.  Each share of Class A common stock is entitled to one vote per share, and
each share of Class B common stock is entitled to ten votes per share.



ITEM 5. OTHER INFORMATION

Not applicable.

32



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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS

Set forth below is a list of
exhibits included as part of this Quarterly Report:

|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 
|Number   |  | Description of Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|3.01     |  | Amended and Restated Certificate of
      Incorporation of Salem Communications Corporation, a Delaware corporation.
      (1)                                                                                                                                                                                                                                                                                                                                                                 
|3.02     |  | Bylaws of Salem Communications
      Corporation, a Delaware Corporation. (1)                                                                                                                                                                                                                                                                                                                                                                                                                  
|3.03     |  | Certificate of Incorporation of
      Salem Communications Holding Corporation (incorporated by reference to
      previously filed exhibit 2.01). (2)                                                                                                                                                                                                                                                                                                                                         
|3.04     |  | Bylaws of Salem Communications
      Holding Corporation (incorporated by reference to previously filed exhibit
      2.02). (2)                                                                                                                                                                                                                                                                                                                                                               
|3.05     |  | Certificate of Incorporation of
      Salem Communications Acquisition Corporation (incorporated by reference to
      previously filed exhibit 2.03). (2)                                                                                                                                                                                                                                                                                                                                     
|3.06     |  | Bylaws of Salem Communications
      Acquisition Corporation (incorporated by reference to previously filed
      exhibit 2.04). (2)                                                                                                                                                                                                                                                                                                                                                           
|3.07     |  | Certificate of Incorporation of SCA
      License Corporation (incorporated by reference to previously filed exhibit
      2.05). (2)                                                                                                                                                                                                                                                                                                                                                          
|3.08     |  | Bylaws of SCA License Corporation
      (incorporated by reference to previously filed exhibit 2.06).
  (2)                                                                                                                                                                                                                                                                                                                                                                                    
|4.01     |  | Indenture between Salem
      Communications Corporation, a California corporation, certain named
      guarantors and The Bank of New York, as Trustee, dated as of September 25,
      1997, relating to the 91⁄2% Series A and Series B Senior
      Subordinated Notes due 2007. (3)                                                                                                                                                                                                         
|4.02     |  | Form of 91⁄2% Senior Subordinated
      Note (filed as part of exhibit 4.01). (3)                                                                                                                                                                                                                                                                                                                                                                                                                
|4.03     |  | Form of Note Guarantee (filed as
      part of exhibit 4.01). (3)                                                                                                                                                                                                                                                                                                                                                                                                                              
|4.04     |  | Specimen of Class A common
      stock certificate. (4)                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.05     |  | Supplemental Indenture No. 1,
      dated as of March 31, 1999, to the Indenture, dated as of
      September 25, 1997, by and among Salem Communications Corporation, a
      California corporation, Salem Communications Corporation, a Delaware
      corporation, The Bank of New York, as Trustee, and the Guarantors named
      therein. (4)                                                                                                                                           
|4.06     |  | Supplemental Indenture No. 2,
      dated as of August 24, 2000, by and among Salem Communications
      Corporation, a Delaware corporation, Salem Communications Holding
      Corporation, a Delaware corporation, the guarantors named therein and The
      Bank of New York, as Trustee (incorporated by reference to previously
      filed exhibit 4.11). (2)                                                                                                                          
|4.07     |  | Supplemental Indenture No. 3,
      dated as of March 9, 2001, by and among Salem Communications
      Corporation, a Delaware corporation, Salem Communications Holding
      Corporation, a Delaware corporation, the guarantors named therein and The
      Bank of New York, as Trustee. (5)                                                                                                                                                                                               
|4.08     |  | Supplemental Indenture No. 4,
      dated as of June 25, 2001, by and among Salem Communications Holding
      Corporation, a Delaware corporation, the guarantors named therein and The
      Bank of New York, as Trustee. (6)                                                                                                                                                                                                                                                               
|4.09     |  | Fifth Amended and Restated Credit
      Agreement, dated as of September 25, 2003, by and among Salem
      Communications Corporation, Salem Communications Holding Corporation,
      General Electric Capital Corporation, as Syndication Agent, Suntrust Bank,
      as Syndication Agent, Fleet National Bank, as Documentation Agent, ING
      (U.S.) Capital, LLC, as Documentation Agent, The Bank of New York, as
      Administrative Agent, and the Lenders party thereto. (10)    
|4.10     |  | Second Amended and Restated Parent
      Security Agreement dated as of June 15, 2001, by and among Salem
      Communications Corporation, a Delaware corporation, Salem Communications
      Holding Corporation, a Delaware corporation, and The Bank of New York, as
      Administrative Agent. (6)                                                                                                                                                                                       
|4.11     |  | Amendment #1, dated as of May 19, 2004, to the Fifth Amended and Restated
Credit Agreement, dated as of September 25, 2003, by and among Salem Communications Corporation, Salem Communications
Holding Corporation, General Electric Capital Corporation, as Syndication Agent, Suntrust Bank, as Syndication Agent
Fleet National Bank, as Documentation Agent, ING (U.S.) Capital, LLC, as Documentation Agent, The Bank of New York, as
Administrative Agent, and the Lenders party hereto.
|4.15     |  | Indenture between Salem
      Communications Holding Corporation, a Delaware corporation, certain named
      guarantors and The Bank of New York, as Trustee, dated as of June 25,
      2001, relating to the 9% Series A and Series B Senior Subordinated Notes
      due 2011. (6)                                                                                                                                                                                                         
|4.16     |  | Form of 9% Senior Subordinated
      Notes (filed as part of exhibit 4.15).                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.17     |  | Form of Note Guarantee (filed as
      part of exhibit 4.15). (6)                                                                                                                                                                                                                                                                                                                                                                                                                              
|4.18     |  | Registration Rights Agreement dated
      as of June 25, 2001, by and among Salem Communications Holding
      Corporation, the guarantors and initial purchasers named therein.
      (6)                                                                                                                                                                                                                                                                                                     
|4.19     |  | Indenture, dated as of December 23,
      2002, relating to the 73⁄4% Senior Subordinated Notes due 2010 by and among
      Salem Holding, the Company and The Bank of New York, as trustee, with form
      of Note incorporated (incorporated by reference to previously filed
      exhibit 4.1). (7)                                                                                                                                                                                         
|4.20     |  | Form of 73⁄4% Senior Subordinated
      Notes (filed as part of exhibit 4.19). (7)                                                                                                                                                                                                                                                                                                                                                                                                               
|4.21     |  | Form of Note Guarantee (filed as
      part of exhibit 4.19). (7)                                                                                                                                                                                                                                                                                                                                                                                                                              
|4.22     |  | Supplemental Indenture No. 1 to the
      73⁄4% Senior Subordinated Notes, dated as of December 16, 2002, between
      Salem Communications Corporation and its guarantors, and Bank of New York.
      (8)                                                                                                                                                                                                                                                                                     
|4.23     |  | Supplemental Indenture No. 1 to the
      9% Senior Subordinated Notes, dated as of December 23, 2002, between Salem
      Communications Corporation and its guarantors, and Bank of New York.
      (8)                                                                                                                                                                                                                                                                                      
|4.24     |  | Supplemental Indenture No. 2 to the
      73⁄4% Senior Subordinated Notes, dated as of June 12, 2003, between Salem
      Communications Corporation and its guarantors, and Bank of New York.
      (9)                                                                                                                                                                                                                                                                                         
|4.25     |  | Supplemental Indenture No. 2 to the
      9% Senior Subordinated Notes, dated as of June 12, 2003, between Salem
      Communications Corporation and its guarantors, and Bank of New York.
      (9)                                                                                                                                                                                                                                                                                          
|4.26     |  | Consent No. 2, dated as of July 23,
      2003, under the Fourth Amended and Restated Credit Agreement between Salem
      Communications Corporation and its guarantors, and The Bank of New York.
      (9)                                                                                                                                                                                                                                                                                  
|10.01.01 |  | Employment Agreement, dated July 1, 2004, between Salem
Communications Holding Corporation and Edward G. Atsinger III.                                                                                                                                                                                                                                                                                                                                                                         
|10.02.01 |  | Employment Agreement, dated July 1, 2004, between Salem
Communications Holding Corporation and Stuart W. Epperson.                                                                                                                                                                                                                                                                                                                                                                             
|31.1     |  | Certification of Edward G. Atsinger
      III Pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act.                                                                                                                                                                                                                                                                                                                                                                                
|31.2     |  | Certification of David A.R. Evans
      Pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act.                                                                                                                                                                                                                                                                                                                                                                                      
|32.1     |  | Certification of Edward G. Atsinger
      III Pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                                                                                                                                                                                                                                              
|32.2     |  | Certification of David A.R. Evans
      Pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                                                                                                                                                                                                                                                    

33



---

|     |  |                                                                                                                                                                                                                                                                               
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)  |  | Incorporated by reference to the
      exhibit of the same number, unless otherwise noted, of Salems Current
      Report on Form 8-K, filed with the Securities and Exchange Commission
      on April 14, 1999.                                                            
|(2)  |  | Incorporated by reference to the
      exhibit of the same number, unless otherwise noted, to Salems Current
      Report on Form 8-K; filed with the Securities and Exchange Commission
      on September 8, 2000.                                                         
|(3)  |  | Incorporated by reference to the
      exhibit of the same number, unless otherwise noted, of Salems
      Registration Statement on Form S-4 (No. 333-41733), as amended, as
      declared effective by the Securities and Exchange Commission on
      February 9, 1998.  
|(4)  |  | Incorporated by reference to the
      exhibit of the same number, unless otherwise noted, to the Companys
      Registration Statement on Form S-1 (No. 333-76649) as amended,
      as declared effective by the Securities and Exchange Commission on June
      30, 1999.
|(5)  |  | Incorporated by reference to the
      exhibit of the same number, unless otherwise noted, of the Companys
      Current Report on Form 8-K, filed with the Securities and Exchange
      Commission on October 16, 2001.                                                    
|(6)  |  | Incorporated by reference to the
      exhibit of the same number, unless otherwise noted, to Salems Quarterly
      Report on Form 10-Q, filed with the Securities and Exchange
      Commission on August 14, 2001.                                                        
|(7)  |  | Incorporated by reference to the
      exhibit of the same number, unless otherwise noted, to Salems Current
      Report on Form 8-K, filed with the Securities and Exchange Commission
      on December 23, 2002.                                                         
|(8)  |  | Incorporated by reference to the
      exhibit of the same number, unless otherwise noted of Salems Annual
      Report on Form 10-K, filed with the Securities and Exchange
      Commission on March 31, 2003.                                                             
|(9)  |  | Incorporated by reference to the
      exhibit of the same number, unless otherwise noted, to Salems Quarterly
      Report on Form 10-Q, filed with the Securities and Exchange
      Commission on August 6, 2003.                                                         
|(10) |  | Incorporated by reference to the
      exhibit of the same number, unless otherwise noted, to Salems Quarterly
      Report on Form 10-Q, filed with the Securities and Exchange
      Commission on November 6, 2003.                                                       

34



---

(b) REPORTS ON FORM 8-K

Form 8-K dated April 19, 2004 was furnished to the Securities and Exchange Commission,
reporting the companys issuance of a press release updating its earnings guidance for the quarter
ended March 31, 2004.

Form 8-K dated April 26, 2004 was furnished to the Securities and Exchange Commission,
reporting the companys issuance of a press release on the financial results of the
quarter ended March, 2004 and announcing its proposed equity offering.

Form 8-K dated April 29, 2004, filing
exhibit 23.1, Consent of Ernst & Young LLP, Independent Auditors.

Form 8-K3 dated April 29, 2004 was furnished to the Securities and Exchange Commission, announcing the pricing of its equity offering.

Form 8-K dated April 29, 2004, filing certain exhibits related to the companys
equity offering.

Form 8-K dated June 7, 2004 was furnished to the Securities and Exchange Commission, reporting the companys issuance of a press release,
dated June 7, 2004, updating its guidance for the quarter ending June 30, 2004, announcing its
participation at a conference and announcing the redemption of $52.5 million of 9% Senior Subordinated Notes.

35



---



SIGNATURES

Pursuant to the requirements
of the Securities Exchange Act of 1934, Salem Communications Corporation has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.









| |                | SALEM COMMUNICATIONS CORPORATION                           | 
| | -------------- | ---------------------------------------------------------- | 
| | August 6, 2004 |                                                            | 
| |                | By: /s/ EDWARD G. ATSINGER III                             | 
| |                |                                                            | 
| |                | Edward G. Atsinger III                                     | 
| |                | President and Chief Executive Officer                      | 
| |                | (Principal Executive Officer)                              | 
| | August 6, 2004 |                                                            | 
| |                | By: /s/ DAVID A.R. EVANS                                   | 
| |                |                                                            | 
| |                | David A.R. Evans                                           | 
| |                | Executive Vice President and Chief
      Financial Officer | 
| |                | (Principal Financial Officer)                              | 

36



---

EXHIBIT INDEX

|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 
|Number   |  | Description of Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|4.11     |  | Amendment #1, dated as of May 19, 2004, to the Fifth
Amended and Restated Credit Agreement, dated as of September 25, 2003, by and among Salem Communications
Corporation, Salem Communications Holding Corporation, General Electric Capital Corporation, as
Syndication Agent, Suntrust Bank, as Syndication Agent, Fleet National Bank, as Documentation Agent,
ING (U.S.) Capital, LLC, as Documentation Agent, The Bank of New York, as Administrative Agent,
and the Lenders party thereto.
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.01.01 |  | Employment Agreement, dated July 1, 2004, between Salem
Communications Holding Corporation and Edward G. Atsinger III.                                                                                                                                                                                                                                                                                                                                                                           
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.02.01 |  | Employment Agreement, dated July 1, 2004, between Salem
Communications Holding Corporation and Stuart W. Epperson.                                                                                                                                                                                                                                                                                                                                                                               
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|31.1     |  | Certification of Edward G. Atsinger
      III Pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange
      Act.                                                                                                                                                                                                                                                                                                                                                                            
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|31.2     |  | Certification of David A.R. Evans
      Pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange
  Act.                                                                                                                                                                                                                                                                                                                                                                                      
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|32.1     |  | Certification of Edward G. Atsinger
      III Pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                                                                                                                                                                                                                                                
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|32.2     |  | Certification of David A.R. Evans
      Pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                                                                                                                                                                                                                                                      

37



---



EXHIBIT 4.11

`AMENDMENT NO. 1
                                                                  TO
                                              FIFTH AMENDED AND RESTATED CREDIT AGREEMENT


         AMENDMENT NO. 1 (this  Amendment),  dated as of May 19, 2004, to the Fifth Amended and Restated Credit  Agreement,  dated as
of September 25, 2003, among Salem Communications  Holding Corporation,  a Delaware corporation (the Borrower),  Salem Communications
Corporation,  a California  corporation,  the Lenders  party  thereto,  General  Electric  Capital  Corporation  and SunTrust  Bank, as
Syndication  Agents,  Fleet  National  Bank and ING  (U.S.)  Capital  LLC,  as  Documentations  Agents,  and The Bank of New  York,  as
administrative agent for the Lenders thereunder (in such capacity, the Administrative Agent) (the Credit Agreement).

                                                                    RECITALS

I.       Except as otherwise  provided herein,  capitalized  terms used herein which are not defined herein shall have the meanings set
forth in the Credit Agreement.

II.      The Borrower  has  requested  that the  Administrative  Agent and the Lenders  amend the Credit  Agreement  upon the terms and
conditions contained herein, and the Administrative Agent and the Lenders are willing to do so.

         Accordingly,  in  consideration  of the covenants,  conditions and agreements  hereinafter  set forth,  and for other good and
valuable  consideration,  the  receipt and  adequacy  of which are hereby  acknowledged,  and  pursuant  to Section  10.2 of the Credit
Agreement, the parties hereto agree as follows:

1.       Section 1.1 of the Credit  Agreement is hereby amended by adding the following new  definitions  in  appropriate  alphabetical
order:

                  Camarillo  Property:  Borrowers  right,  title and interest in and to the building  located at 4880 Santa
         Rosa Road, Camarillo, California, including, without limitation, the underlying real estate.

                  2004 Equity Issuance means the Equity Issuance occurring on May 5, 2004.

                  WGKA/KSFB Real Property Capital  Expenditures has the meaning assigned to such term in clause (iii) of the
         definition of Fixed Charges.

2.       The pricing grid in subsection (b) of the definition of Applicable  Margin  contained in Section 1.1 of the Credit Agreement
is hereby amended and restated in its entirety to read as follows:

=============================================== ====================== ======================
      When the Total Leverage Ratio is:
----------------------------------------------- ---------------------- ----------------------
------------------------ ---------------------- ---------------------- ----------------------
 greater than or equal       and less than        B Term ABR Margin      B Term Eurodollar
          to                                                                  Margin
------------------------ ---------------------- ---------------------- ----------------------
------------------------ ---------------------- ---------------------- ----------------------
       7.00:1.00                                       1.000%                 2.250%
------------------------ ---------------------- ---------------------- ----------------------
------------------------ ---------------------- ---------------------- ----------------------
       5.50:1.00               7.00:1.00               0.750%                 2.000%
------------------------ ---------------------- ---------------------- ----------------------
------------------------ ---------------------- ---------------------- ----------------------
                               5.50:1.00               0.500%                 1.750%
======================== ====================== ====================== ======================


3.       The  definition  of Equity  Acquisition  Issuance  contained  in Section 1.1 of the Credit  Agreement  is hereby  amended by
replacing the reference to 30 days with 60 days.

4.       Clause (iii) of the definition of Fixed Charges is amended and restated in its entirety to read as follows:

         (iii) capital  expenditures  (excluding  capital  expenditures made with insurance  proceeds or condemnation  awards,  capital
expenditures  associated with an acquisition made within the 12 month period immediately  following such acquisitions,  non-maintenance
capital  expenditures  made in connection  with the acquisition of certain real property in connection with the upgrade of Broadcasting
Stations WGKA-AM in Atlanta,  Georgia and KSFB-AM in Palo Alto,  California not exceeding $20,000,000 in the aggregate (the WGKA/KSFB
Real  Property  Capital  Expenditures),  and other  non-maintenance  capital  expenditures  made in  connection  with the  upgrade  of
Broadcasting  Stations not exceeding  $3,000,000,  provided that, with respect to any such non-maintenance  capital expenditures (other
than WGKA/KSFB Real Property Capital  Expenditures) made in connection with the upgrade of a Broadcasting  Station exceeding  $100,000,
the Borrower shall have provided the Administrative Agent with prompt written notice thereof),

5.       The  definition  of Net Equity  Proceeds  contained in Section 1.1 of the Credit  Agreement is hereby  amended by adding the
following at the end thereof:

         Notwithstanding the foregoing,  Net Proceeds received from the 2004 Equity Issuance,  to the extent used to redeem or
         repurchase up to $52,500,000  principal amount of 2001 Subordinated  Indenture Notes prior to October 31, 2004, shall
         not constitute Net Equity Proceeds.

6.       Section 7.2 of the Credit  Agreement  is amended by (i)  deleting the word and at the end of  subsection  (d) thereof,  (ii)
replacing the period at the end of subsection (e) thereof with ; and and (iii) inserting a new subsection (f) to read as follows:

                  (f)      Liens in the form of one or more deeds of trust on the Camarillo Property securing  Indebtedness of
         the Borrower permitted to be incurred pursuant to Section  7.1(a)(ii) in an aggregate  principal amount not exceeding
         $10,000,000, provided that such Liens shall extend only to the Camarillo Property.

7.       Section 7.4 of the Credit  Agreement  is amended by adding the  following  immediately  after the words the  aggregate of all
non-maintenance  capital  expenditures  appearing in clause (y) of subsection  (g)(i)  thereof:  (including  WGKA/KSFB  Real Property
Capital Expenditures).

8.       Section  7.8(c) of the Credit  Agreement is amended by replacing the words  repurchase  2001  Subordinated  Indenture  Notes
contained therein with the words redeem or repurchase 2001 Subordinated Indenture Notes.

9.       Section  7.8(f) of the Credit  Agreement  is amended by replacing  the words  repurchase  its  Subordinated  Debt  contained
therein with the words redeem or repurchase its Subordinated Debt.

10.      Section 7.8 of the Credit  Agreement  is amended by (i)  deleting the word and at the end of  subsection  (e) thereof,  (ii)
replacing the period at the end of subsection (f) thereof with ; and and (iii) inserting a new subsection (g) to read as follows:

                  (g)      notwithstanding  the  provisions of subsections  (a) through (f) above,  if at the time thereof and
         immediately  before and after  giving  effect  thereto  no  Default  shall have  occurred  and be  continuing,  up to
         $52,500,000  principal amount of 2001 Subordinated  Indenture Notes may be repurchased prior to October 31, 2004 with
         the Net Proceeds received from the 2004 Equity Issuance.

11.      The Lenders hereby consent to the  Administrative  Agent releasing from the Lien of the Security  Documents all or any part of
the  Camarillo  Property  (including  any UCC fixture or similar  filings  related  thereto) in connection  with the  incurrence by the
Borrower of Indebtedness  permitted under Section  7.1(a)(ii) of the Credit  Agreement in an aggregate  principal  amount not exceeding
$10,000,000 and secured by Liens permitted under Section 7.2(f) of the Credit Agreement.

12.      Paragraphs 1-11 of this Amendment shall not become effective until the Administrative Agent shall have received:

(a)      with respect to paragraphs 1 and 3-11,  counterparts  of this Amendment  duly executed by the Borrower,  the  Guarantors,  the
         Administrative  Agent and the Required Lenders and, with respect to paragraph 2,  counterparts of this Amendment duly executed
         by the Borrower, the Guarantors, the Administrative Agent and all of the Lenders;

(b)      a  certificate,  dated the date hereof,  of the  Secretary or an Assistant  Secretary of each Loan Party  attaching a true and
         complete copy of the  resolutions  of its Board of Directors or other  authorizing  documents and of all documents  evidencing
         all necessary corporate or other action (in form and substance reasonably  satisfactory to the Administrative  Agent) taken by
         it to authorize this Amendment and the transactions contemplated hereby and thereby; and

(c)      for the account of each Lender  executing and  delivering  (without  condition)  this  Amendment to the  Administrative  Agent
         before 5:00 p.m.  (New York City time) on Thursday,  May 13, 2004, an amendment fee equal to 0.05% of the sum of such Lenders
         Revolving Commitment and outstanding B Term Loans on such date.

13.      In all other respects the Credit Agreement and other Loan Documents shall remain in full force and effect.

14.      In order to induce the  Administrative  Agent and the Lenders to execute and deliver  this  Amendment,  the  Borrower  and the
Guarantors each (a) certifies that,  immediately before and after giving effect to this Amendment,  all  representations and warranties
contained in the Loan  Documents  to which it is a party shall be true and correct in all respects  with the same effect as though such
representations  and warranties had been made on the date hereof,  except as the context otherwise  requires or as otherwise  permitted
by the Loan Documents or this Amendment,  (b) certifies that, immediately before and after giving effect to this Amendment,  no Default
or Event of  Default  shall  exist  under  the Loan  Documents,  as  amended,  and (c)  agrees  to pay all of the  reasonable  fees and
disbursements  of counsel to the  Administrative  Agent incurred in connection  with the  preparation,  negotiation and closing of this
Amendment.

15.      Each of the Borrower and the Guarantors  (a) reaffirms and admits the validity,  enforceability  and continuing  effect of all
Loan Documents to which it is a party, and its obligations  thereunder,  and (b) agrees and admits that as of the date hereof it has no
valid defenses to or offsets against any of its obligations to any Credit Party under any Loan Document to which it is a party.

16.      This Amendment may be executed in any number of separate  counterparts  and all of said  counterparts  taken together shall be
deemed to constitute one and the same  document.  It shall not be necessary in making proof of this Amendment to produce or account for
more than one counterpart signed by the party to be charged.

17.      This Amendment shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York.

18.      The parties have caused this Amendment to be duly executed as of the date first written above.





                                                            [signature pages follow]







                                                   SALEM COMMUNICATIONS CORPORATION
                                               SALEM COMMUNICATIONS HOLDING CORPORATION
                                                        AMENDMENT NO. 1 TO THE
                                              FIFTH AMENDED AND RESTATED CREDIT AGREEMENT



                                                   SALEM COMMUNICATIONS CORPORATION
                                               SALEM COMMUNICATIONS HOLDING CORPORATION
                                                        AMENDMENT NO. 1 TO THE
                                              FIFTH AMENDED AND RESTATED CREDIT AGREEMENT`

| |  |  |  | SALEM COMMUNICATIONS HOLDING CORPORATION |  |                                 
| |  |  |  | ---------------------------------------- |  | --------------------------------
| |  |  |  |                                         
| |  |  |  |                                         
| |  |  |  |                                         
| |  |  |  |                                         
| |  |  |  | By:                                      |  | /s/ DAVID A.R. EVANS            
| |  |  |  |                                          |  |                                 
| |  |  |  | Name:                                    |  | David A.R. Evans                
| |  |  |  | Title:                                   |  | Executive Vice President and CFO



| |  |  |  | SALEM COMMUNICATIONS CORPORATION |  |                                 
| |  |  |  | -------------------------------- |  | --------------------------------
| |  |  |  |                                 
| |  |  |  |                                 
| |  |  |  |                                 
| |  |  |  |                                 
| |  |  |  | By:                              |  | /s/ DAVID A.R. EVANS            
| |  |  |  |                                  |  |                                 
| |  |  |  | Name:                            |  | David A.R. Evans                
| |  |  |  | Title:                           |  | Executive Vice President and CFO

`ATEP RADIO, INC.
                                                 BISON MEDIA, INC.
                                                 CARON BROADCASTING, INC.
                                                 CCM COMMUNICATIONS, INC.
                                                 COMMON GROUND BROADCASTING, INC.
                                                 GOLDEN GATE BROADCASTING COMPANY, INC.
                                                 INSPIRATION MEDIA, INC.
                                                 KINGDOM DIRECT, INC.
                                                 NEW ENGLAND CONTINENTAL MEDIA, INC.
                                                 NEW INSPIRATION BROADCASTING COMPANY, INC.
                                                 NI ACQUISITION CORP.
                                                 PENNSYLVANIA MEDIA ASSOCIATES, INC.
                                                 RADIO 1210, INC.
                                                 REACH SATELLITE NETWORK, INC.
                                                 SALEM MEDIA CORPORATION
                                                 SALEM MEDIA OF COLORADO, INC.
                                                 SALEM MEDIA OF GEORGIA, INC.
                                                 SALEM MEDIA OF HAWAII, INC.
                                                 SALEM MEDIA OF KENTUCKY, INC.
                                                 SALEM MEDIA OF OHIO, INC.
                                                 SALEM MEDIA OF OREGON, INC.
                                                 SALEM MEDIA OF TEXAS, INC.
                                                 SALEM MEDIA OF VIRGINIA, INC.
                                                 SALEM MUSIC NETWORK, INC.
                                                 SALEM RADIO NETWORK INCORPORATED
                                                 SALEM RADIO PROPERTIES, INC.
                                                 SALEM RADIO REPRESENTATIVES, INC.
                                                 SOUTH TEXAS BROADCASTING, INC.
                                                 SRN NEWS NETWORK, INC.
                                                 VISTA BROADCASTING, INC.`

| |  |  |  | AS TO EACH OF THE FOREGOING |  |                                 
| |  |  |  | --------------------------- |  | --------------------------------
| |  |  |  |                            
| |  |  |  |                            
| |  |  |  |                            
| |  |  |  |                            
| |  |  |  | By:                         |  | /s/ DAVID A.R. EVANS            
| |  |  |  |                             |  |                                 
| |  |  |  | Name:                       |  | David A.R. Evans                
| |  |  |  | Title:                      |  | Executive Vice President and CFO

`SALEM COMMUNICATIONS ACQUISITION CORPORATION
                                                 SCA LICENSE CORPORATION`

| |  |  |  | AS TO EACH OF THE FOREGOING |  |                                 
| |  |  |  | --------------------------- |  | --------------------------------
| |  |  |  |                            
| |  |  |  |                            
| |  |  |  |                            
| |  |  |  |                            
| |  |  |  | By:                         |  | /s/ DAVID A.R. EVANS            
| |  |  |  |                             |  |                                 
| |  |  |  | Name:                       |  | David A.R. Evans                
| |  |  |  | Title:                      |  | Executive Vice President and CFO

`INSPIRATION MEDIA OF TEXAS, LLC
                                                 SALEM MEDIA OF ILLINOIS, LLC
                                                 SALEM MEDIA OF NEW YORK, LLC
                                                 SALEM RADIO OPERATIONS, LLC
                                                 SALEM SATELLITE MEDIA, LLC`

| |  |  |  | AS TO EACH OF THE FOREGOING |  |                                 
| |  |  |  | --------------------------- |  | --------------------------------
| |  |  |  |                            
| |  |  |  |                            
| |  |  |  |                            
| |  |  |  |                            
| |  |  |  | By:                         |  | /s/ DAVID A.R. EVANS            
| |  |  |  |                             |  |                                 
| |  |  |  | Name:                       |  | David A.R. Evans                
| |  |  |  | Title:                      |  | Executive Vice President and CFO

`ONEPLACE, LLC
                                                 SCA-PALO ALTO, LLC`

| |  |  |  | AS TO EACH OF THE FOREGOING |  |                                 
| |  |  |  | --------------------------- |  | --------------------------------
| |  |  |  |                            
| |  |  |  |                            
| |  |  |  |                            
| |  |  |  |                            
| |  |  |  | By:                         |  | /s/ DAVID A.R. EVANS            
| |  |  |  |                             |  |                                 
| |  |  |  | Name:                       |  | David A.R. Evans                
| |  |  |  | Title:                      |  | Executive Vice President and CFO

`THE BANK OF NEW YORK, individually, as Issuing Bank, as Swingline Lender and as
                                                     Administrative Agent`

| |  |  |  |        |  |                       
| |  |  |  | ------ |  | ----------------------
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  | By:    |  | /s/ STEPHEN M. NETTLER
| |  |  |  |        |  |                       
| |  |  |  | Name:  |  | Stephen M. Nettler    
| |  |  |  | Title: |  | Vice President        

`GENERAL ELECTRIC CAPITAL CORPORATION, individually and as a Syndication Agent`

| |  |  |  |        |  |                          
| |  |  |  | ------ |  | -------------------------
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  | By:    |  | /s/ RICHARD W. VARALLA   
| |  |  |  |        |  |                          
| |  |  |  | Name:  |  | Richard W. Varalla       
| |  |  |  | Title: |  | Duly Authorized Signatory

`SUNTRUST BANK, individually and as a Syndication Agent`

| |  |  |  |        |  |               
| |  |  |  | ------ |  | --------------
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  | By:    |  | /s/ KIP HURD  
| |  |  |  |        |  |               
| |  |  |  | Name:  |  | Kip Hurd      
| |  |  |  | Title: |  | Vice President

`FLEET NATIONAL BANK, individually and as a Documentation Agent`

| |  |  |  |        |  |                   
| |  |  |  | ------ |  | ------------------
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  | By:    |  | /s/ MICHAEL PAVELL
| |  |  |  |        |  |                   
| |  |  |  | Name:  |  | Michael Pavell    
| |  |  |  | Title: |  | Principal         

`ING (U.S.) CAPITAL, LLC, individually and as a Documentation Agent`

| |  |  |  |        |  |                     
| |  |  |  | ------ |  | --------------------
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  | By:    |  | /s/ WILLIAM C. JAMES
| |  |  |  |        |  |                     
| |  |  |  | Name:  |  | William C. James    
| |  |  |  | Title: |  | Managing Director   

`WELLS FARGO FOOTHILL, LLC`

| |  |  |  |        |  |                    
| |  |  |  | ------ |  | -------------------
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  | By:    |  | /s/ JAMES K. DOWNEY
| |  |  |  |        |  |                    
| |  |  |  | Name:  |  | James K. Downey    
| |  |  |  | Title: |  | Vice President     

`CALYON NEW YORK BRANCH`

| |  |  |  |        |  |                              
| |  |  |  | ------ |  | -----------------------------
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  | By:    |  | /s/ DOUGLAS E. ROPER         
| |  |  |  |        |  |                              
| |  |  |  | Name:  |  | Douglas E. Roper             
| |  |  |  | Title: |  | Managing Director and Manager

| |  |  |  |        |  |                       
| |  |  |  | ------ |  | ----------------------
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  | By:    |  | /s/ SCOTT R. CHAPPELKA
| |  |  |  |        |  |                       
| |  |  |  | Name:  |  | Scott R. Chappelka    
| |  |  |  | Title: |  | Director              

`CREDIT SUISSE FIRST BOSTON, acting through its CAYMAN ISLANDS BRANCH`

| |  |  |  |        |  |                  
| |  |  |  | ------ |  | -----------------
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  | By:    |  | /s/ BILL O' DAILY
| |  |  |  |        |  |                  
| |  |  |  | Name:  |  | Bill O' Daily    
| |  |  |  | Title: |  |                  

| |  |  |  |        |  |                      
| |  |  |  | ------ |  | ---------------------
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  | By:    |  | /s/ CASSANDRA DROOGAN
| |  |  |  |        |  |                      
| |  |  |  | Name:  |  | Cassandra Droogan    
| |  |  |  | Title: |  | Associate            

`UBS AG, CAYMAN ISLANDS BRANCH`

| |  |  |  |        |  |                                        
| |  |  |  | ------ |  | ---------------------------------------
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  | By:    |  | /s/ WILLFRED V. SAINT                  
| |  |  |  |        |  |                                        
| |  |  |  | Name:  |  | Willfred V. Saint                      
| |  |  |  | Title: |  | Director, Banking Products Services, US

| |  |  |  |        |  |                                                  
| |  |  |  | ------ |  | -------------------------------------------------
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  | By:    |  | /s/ JOSELIN FERNANDES                            
| |  |  |  |        |  |                                                  
| |  |  |  | Name:  |  | Joselin Fernandes                                
| |  |  |  | Title: |  | Associate Director, Banking Products Services, US

`FIRST TRUST/FOUR CORNERS SENIOR FLOATING RATE INCOME FUND`

| |  |  |  | By: Four Corners Capital Management, LLC, as Collateral Manager |  |                      
| |  |  |  | --------------------------------------------------------------- |  | ---------------------
| |  |  |  |                                                                
| |  |  |  |                                                                
| |  |  |  |                                                                
| |  |  |  |                                                                
| |  |  |  | By:                                                             |  | /s/ BETH DIGATI      
| |  |  |  |                                                                 |  |                      
| |  |  |  | Name:                                                           |  | Beth Digati          
| |  |  |  | Title:                                                          |  | Senior Vice President

`SEMINOLE FUNDING LLC`

| |  |  |  |        |  |                         
| |  |  |  | ------ |  | ------------------------
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  | By:    |  | /s/ DIANA M. HIMES      
| |  |  |  |        |  |                         
| |  |  |  | Name:  |  | Diana M. Himes          
| |  |  |  | Title: |  | Assistant Vice President





---



EXHIBIT 10.01.01

`EMPLOYMENT AGREEMENT


         This Employment Agreement (the "Agreement") is entered into as of July 1, 2004, by and between Edward G.
Atsinger III, an individual ("Executive"), and Salem Communications Holding Corporation, a Delaware corporation
(the "Company").

                                                     RECITALS

         WHEREAS, the Executive and the Company (as successor to its parent, Salem Communications Corporation, a
Delaware corporation ("Parent")) are parties to the Employment Agreement, dated July 1, 2001 (the "Old Employment
Agreement");

         WHEREAS, the Executive and the Company wish to terminate the Old Employment Agreement, effective as of
midnight on June 30, 2004;

         WHEREAS, the Company desires to employ Executive in the capacity of President and Chief Executive
Officer of the Company on the terms and conditions set forth herein; and

         WHEREAS, Executive desires to serve in such capacity on behalf of the Company and to provide to the
Company the services described herein on the terms and conditions set forth herein.

         NOW, THEREFORE, in consideration of the foregoing recitals, the terms and conditions set forth herein,
and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged,
Executive and the Company hereby agree as follows:

         1.       Employment By The Company And Term.

                  (a)      Full Time and Best Efforts.  Subject to the terms set forth herein, the Company agrees
to employ Executive as President and Chief Executive Officer and Executive hereby accepts such employment.  As
President and Chief Executive Officer, Executive shall have responsibility for the day-to-day operations of the
Company and shall have the authority, functions, duties, powers and responsibilities for Executive's corporate
offices and positions which are set forth in the Company's Bylaws from time to time in effect and such other
authority, functions, duties, powers and responsibilities as the Board of Directors of the Company (the "Board")
may from time to time prescribe or delegate to Executive, in all cases to be consistent with Executive's
corporate offices and positions.  During the Term, Executive shall apply, on a full-time basis, all of his skill
and experience to the performance of his duties hereunder and shall not, without the prior consent of the Board,
devote substantial amounts of time to outside business activities.  The performance of Executive's duties shall
be in Camarillo, California, subject to reasonable travel as the performance of his duties in the business may
require.  Notwithstanding the foregoing, Executive may devote a reasonable amount of his time to civic,
community, charitable or passive investment activities and may devote up to 600 hours per year in the management
and operation of his aircraft charter and fixed based operator company (the FBO).

                  (b)      Company Policies.  The employment relationship between the parties shall be governed
by the general employment policies and practices of the Company and of Parent, including without limitation the
policies described in Section 10 of this Agreement, except that when the terms of this Agreement differ from or
are in conflict with the Company's or Parents general employment policies or practices, this Agreement shall
control.

                  (c)      Term.  Executives term of employment under this Agreement shall commence as of the
date hereof (the Effective Date) and, subject to the terms hereof and the provisions for renewal set forth in
Section 1(d) herein, shall terminate on such date (the Termination Date) that is the earlier of: (1)
June 30, 2007, or (2) the termination of Executives employment pursuant to Section 4 of this Agreement.  The
period from the Effective Date until the Termination Date shall be defined herein as the Term.

                  (d)      Renewal.  Unless the Company or Executive shall have given the other party hereto
notice (any such notice to be given in accordance with Section 11(a) hereof) that this Agreement shall not be
renewed at least ninety (90) days prior to the end of the Term, the Term shall be automatically extended for a
period of one year, with such procedure to be followed in each such successive period.

         2.       Compensation And Benefits.

                  (a)      Cash Salary.  Executive shall receive for services to be rendered hereunder an annual
base salary of Eight Hundred Fifty Thousand Dollars ($850,000) (the "Base Salary").

                  (b)      Participation in Benefit Plans.  During the Term, Executive shall be entitled to
participate in any group insurance, hospitalization, medical, dental, health and accident, disability,
compensation or other plan or program of the Company now existing or established hereafter to the extent that he
is eligible under the general provisions thereof.  The Company may, in its sole discretion and from time to time,
amend, eliminate or establish additional benefit programs as it deems appropriate.  Executive shall also
participate in all fringe benefits offered by the Company to any of its senior executives.  The availability and
terms of such benefit plans shall be set by the Board of Directors of the Company, or its designated committee,
and may change from time-to-time.  Executive shall be required to comply with all conditions attendant to
coverage by the benefit plans hereunder and shall be entitled to benefits only in accordance with the terms and
conditions of such plans as they may be enumerated from time to time.

                  (c)      Perquisites.  During the Term, the Company shall provide Executive with the
perquisites and other fringe benefits generally made available to senior executives of the Company and any such
other benefits as the Board of Directors, or its designated committee, may elect to grant from time-to-time
including the following:

                           (1)      Automobile Allowance.  The Company shall provide Executive, at no cost to
Executive, the use of a company-owned or company-leased vehicle of a cost and quality reasonably acceptable to
the Company but, in any event, equal to or exceeding the cost and quality of the vehicle presently used by
Executive.  The Company shall pay, or reimburse Executive for, all costs associated with operating, maintaining
and insuring such automobile, provided such costs are itemized and presented to the company in writing and in a
form as then prescribed by the Company in its policies for the reimbursement of employee business expenses;

                           (2)      Life Insurance.  The Company shall provide Executive the death benefit
provided under a split-dollar life insurance policy pursuant to a separate Split Dollar Life Insurance Agreement
dated December 31, 2003, and entered into by Executive and the Company;

                           (3)      Regulatory Filings.  The Company shall pay for all governmental and regulatory
filings required by Executive solely as a result of his position as an officer or director of the Company or its
parent, Salem Communications Corporation (Parent), including, but not limited to, all Section 16 filings
required by Executive.  For avoidance of doubt, such filings would include SEC Forms 4 and 5 and Schedule 13D and
FCC ownership reports and transfer applications and would not include other filings required in connection with
the sale of company stock by Executive;

                           (4)      Regulatory Filings/Fees Associated with Option Exercises.  In the
event Executive is required to make regulatory filings as a result of his exercise of options granted
him by the Company for the purchase of stock of the Parent, the Company shall pay the cost of such
filings, including any filing fee.  The benefits provided in this Section 2(c)(5) shall include full
reimbursement for any income and employment taxes applicable to such benefits;

                           (5)      Travel and Entertainment Expenses.  Reasonable, bona-fide Company-related
entertainment and travel expenses incurred by Executive in accordance with the Executive Handbook, Code of
Ethical Conduct, Financial Code of Conduct and other written policies, all as issued by the Company, relating
thereto shall be reimbursed or paid by the Company; and,

                           (6)       Supplemental Health Benefit.  In addition to the group medical, dental and
vision insurance provided by the Company, the Company shall either provide Executive with supplemental medical
insurance or reimburse Executive, in either case, for one hundred percent (100%) of the costs of all medical
expenses for Executive, including any vision, health or dental expenses incurred by Executive, that are not
covered under the Companys medical benefits programs.  The Company shall also reimburse Executive for one
hundred percent (100%) of the costs of travel related to Executives procurement of medical care in accordance
with Executives normal standard of travel.  The benefits provided in this Section 2(c)(3) shall include full
reimbursement for any income and employment taxes applicable to such benefits.

         3.       Bonuses.

         In addition to the other compensation of Executive as set forth herein, and subject to the provisions of
Section 4 hereof, Executive shall be eligible for an annual merit bonus in an amount to be determined at the
discretion of the Board of Directors of the Company, which bonus may be paid in cash, options or a combination
thereof.  The annual bonus shall be driven by and proportionate to GAAP-determined EBIDTA generated by the
business activities of Parent reporting to Executive.

         4.       Termination Of Employment.

                   (a)     Termination For Cause.

                           (1)      Termination; Payment of Accrued Salary.  The Board may terminate Executive's
employment with the Company at any time for cause, immediately upon notice to Executive of the circumstances
leading to such termination for cause. In the event that Executive's employment is terminated for cause,
Executive shall receive payment for all accrued salary through the Termination Date, which in this event shall be
the date upon which notice of termination is given. The Company shall have no further obligation to pay severance
of any kind nor to make any payment in lieu of notice.

                           (2)      Definition of Cause.  For the purposes of this Agreement, Cause shall mean,
without limitation, the following:  (A) the death of Executive; (B) any mental or physical impairment which
prevents Executive at any time during the Term from performing the essential functions of his full duties for a
period of 180 days within any 270 day period and Executive thereafter fails to return to work within 10 days of
notice by the Company of intention to terminate (Disability); (C) continued gross neglect, malfeasance or gross
insubordination in performing duties assigned to Executive; (D) a conviction for a crime involving moral
turpitude; (E) an egregious act of dishonesty (including without limitation theft or embezzlement) in connection
with employment, or a malicious action by Executive toward Parent, Company, or their affiliates or related
entities (together with Parent, collectively Affiliates); (F) a violation of the provisions of Section 6(a)
hereof; (G) a willful breach of this Agreement; (H) disloyalty; and (I) material and repeated failure to carry
out reasonably assigned duties or instructions consistent with Executives position.

                   (b)     Termination by Executive.  Executive shall have the right, at his election, to
terminate his employment with the Company by notice to the Company to that effect: (1) if the Company shall have
failed to substantially perform a material condition or covenant of this Agreement ("Company's Material Breach")
or (2) if the Company materially reduces or diminishes Executive's powers and responsibilities hereunder;
provided, however, that a termination under clauses (1) and (2) of this Section 4(b) shall not be effective until
Executive shall have given notice to the Company specifying the claimed breach and, provided such breach is
curable, Company fails to correct the claimed breach within 30 days after the receipt of the applicable notice or
such longer term as may be reasonably required by the Company due to the nature of the claimed breach (but within
10 days if the failure to perform is a failure to pay monies when due under the terms of this Agreement).

                  (c)      Termination Upon Disability.  The Company may terminate Executive's employment in the
event Executive suffers a Disability (as defined in Section 4(a)(2) hereof).  After the Termination Date, which
in this event shall be the date upon which notice of termination is given, no further compensation shall be
payable under this Agreement except that Executive shall receive the accrued portion of any salary and bonus
through the Termination Date, less standard withholdings for tax and social security purposes, payable, in the
case of a bonus, upon such date or over such period of time which is in accordance with the applicable bonus plan
plus severance equal to 100% of his then Base Salary for 15 months without offset for any disability payments
Executive may receive, payable in equal monthly installments.  After the Termination Date, which in this event
shall be the date upon which notice of termination is given, any then unvested or time-vested stock options
previously granted to Executive by the Company, including without limitation those grants described in Section
3(c) of this Agreement, shall become immediately one hundred percent (100%) vested.

                  (d)      Termination Without Cause; Failure to Renew.

                           (1)      Termination Payments.  In the event that, during the Initial Term, Executive's
employment is terminated by the Company other than pursuant to Section 4(a) or 4(c), or by Executive pursuant to
Section 4(b), the Company shall pay Executive as severance an amount equal to his then Base Salary for the longer
of six months or the remainder of the Initial Term, less standard withholdings for tax and social security
purposes, payable in equal installments over six consecutive months, or, if longer, the number of months
remaining in the Initial Term, commencing immediately following termination, in monthly pro rata payments
commencing as of the Termination Date, plus the accrued portion of any bonus through the Termination Date, less
standard withholdings for tax and social security purposes, payable, in the case of a bonus, upon such date or
over such period of time which is in accordance with the applicable bonus plan.  In the event that during an
Extended Term Executive's employment is terminated by the Company other than pursuant to Section 4(a) or 4(c), or
by Executive pursuant to Section 4(b), or if the Company shall fail to renew the term of this Agreement at the
expiration of the Initial Term (including any renewal term thereof), the Company shall pay Executive as severance
an amount equal to three months of his then Base Salary, less standard withholdings for tax and social security
purposes, payable in equal installments over three consecutive months commencing immediately following
termination or failure to renew in monthly pro rata payments commencing as of the Termination Date, plus the
accrued portion of any bonus through the Termination Date, less standard withholdings for tax and social security
purposes, payable, in the case of a bonus, upon such date or over such period of time which is in accordance with
the applicable bonus plan.

                  (e)      Benefits Upon Termination.   All benefits provided under Section 2(b) hereof shall be
extended at the Executive's cost, to the extent permitted by the Company's insurance policies and benefit plans,
for six months after Executive's Termination Date, except (a) as required by law (e.g. COBRA health insurance
continuation election) or (b) in the event of a termination by the Company pursuant to Section 4(a).

                  (f)      Termination Upon Death.  If Executive dies prior to the expiration of the Term, the
Company shall (1) continue coverage of Executive's dependents (if any) under all applicable benefit plans or
programs of the type listed above in Section 2(b) herein for a period of 12 months, and (2) pay to Executive's
estate the accrued portion of any salary and bonus through the Termination Date, less standard withholdings for
tax and social security purposes, payable, in the case of a bonus, upon such date or over such period of time
which is in accordance with the applicable bonus plan.  After the Termination Date, which in this event shall be
the date of Executives death, any then unvested or time-vested stock options previously granted to Executive by
the Company, including without limitation those grants described in Section 3(c) of this Agreement, shall become
immediately one hundred percent (100%) vested.

                  (g)      No Offset.  Executive shall have no duty to mitigate any of his damages or losses and,
except as provided in Section 3(a) hereof, the Company shall not be entitled to reduce or offset any payments
owed to Executive hereunder for any reason.

         5.       Right Of First Refusal On Corporate Opportunities.

                  During the Term, Executive agrees that he shall, prior to exploiting a Corporate Opportunity
(hereafter defined) for his own account or for the benefit of an immediate family members account, offer the
Company a right of first refusal with respect to such Corporate Opportunity.  For purposes of this Section 5,
"Corporate Opportunity" shall mean any business opportunity that is in the same or a related business as any of
the businesses in which the Company or any of its Affiliates is involved; provided that "Corporate Opportunity"
shall not include any business opportunity that is in the same or a related business as any of the businesses in
which the FBO is involved.  The determination as to whether a business opportunity constitutes a Corporate
Opportunity shall be made by the Nominating and Corporate Governance Committee of Parent or a majority of the
disinterested and independent members of the Board, and their determination shall be based on an evaluation of:
(a) the extent to which the Corporate Opportunity is within the Company's or any of its Affiliates' existing
lines of business or its existing plans to expand; (b) the extent to which the Corporate Opportunity supplements
the Company's or any of its Affiliates' existing lines of activity or complements the Company's or any of its
Affiliates' existing methods of service; (c) whether the Company has available resources that can be utilized in
connection with the Corporate Opportunity; (d) whether the Company is legally or contractually barred from
utilizing the Corporate Opportunity; (e) the extent to which utilization of the Corporate Opportunity by
Executive would create conflicts of interest with the Company or any of its Affiliates; and (f) any other factors
the committee or such disinterested and independent Board members deem(s) appropriate under the circumstances.

         6.       Executives Obligations.

                  (a)      Confidential Information. Executive agrees that, during the Term or at any time
thereafter:
                           (1)      Executive shall not use for any purpose other than the duly authorized
business of Company, or disclose to any third party, any information relating to Company or any of its Affiliates
which is proprietary to Company or any of its Affiliates ("Confidential Information"), including any customer
list, contact information, rate schedules, programming, data, plans, intellectual property, trade secret or any
written (including in any electronic form) or oral communication incorporating Confidential Information in any
way (except as may be required by law or in the performance of Executives duties under this Agreement consistent
with Company's policies) regardless of whether or not such information has been labeled as confidential; and

                           (2)      Executive shall comply with any and all confidentiality obligations of Company
to a third party, whether arising under a written agreement or otherwise.

                  (b)      Work For Hire.

                           (1)      The results and proceeds of Executives services to Company, including,
without limitation, any works of authorship resulting from Executives services during Executives employment
with Company and/or any of its Affiliates and any works in progress resulting from such services, shall be
works-made-for-hire and Company shall be deemed the sole owner of any and all rights of every nature in such
works, whether such rights are now known or hereafter defined or discovered, with the right to use the works in
perpetuity in any manner Company determines in its sole discretion without any further payment to Executive. If,
for any reason, any of such results and proceeds are not legally deemed a work-made-for-hire and/or there are any
rights in such results and proceeds which do not accrue to Company under the preceding sentence, then Executive
hereby irrevocably assigns and agrees to assign any and all of Executives right, title and interest thereto,
whether now known or hereafter defined or discovered, and Company shall have the right to use the work in
perpetuity in any location and in any manner Company determines in its sole discretion without any further
payment to Executive.

                           (2)      Executive shall do any and all things which Company may deem useful or
desirable to establish or document Company's rights in any such results and proceeds, including, without
limitation, the execution of appropriate copyright, trademark and/or patent applications, assignments or similar
documents and, if Executive is unavailable or unwilling to execute such documents, Executive hereby irrevocably
designates the Chairman of the Board of Directors of Parent or his designee as Executives attorney-in-fact with
the power to execute such documents on Executives behalf. To the extent Executive has any rights in the results
and proceeds of Executives services under this Agreement that cannot be assigned as described above, Executive
unconditionally and irrevocably waives the enforcement of such rights.

                           (3)      Works-made-for-hire do not include subject matter that meets all of the
following criteria:  (A) is conceived, developed and created by Executive on Executives own time without using
the Companys equipment, supplies or facilities or any trade secrets or confidential information, (B) is
unrelated to the actual or reasonably anticipated business or research and development of Company of which
Executive is or becomes aware; and (C) does not result from any work performed by Executive for Company.

                  (c)      Return of Property. All documents, data, recordings, equipment or other property,
whether tangible or intangible, including all information stored in electronic form, obtained or prepared by or
for Executive and utilized by Executive in the course of Executives employment with Company or any of its
Affiliates shall remain the exclusive property of Company and shall not be removed from the premises of the
Company under any circumstances whatsoever without the prior written consent of the Company, except when (and
only for the period) necessary to carry out Executive's duties hereunder, and if removed shall be immediately
returned to the Company upon any termination of his employment and no copies thereof shall be kept by Executive;
provided, however, that Executive shall be entitled to retain documents reasonably related to his prior interest
as a shareholder.  Upon termination of employment, Executive shall promptly return all of Companys property to
Company.

                  (d)      Use of Executives Name, Image and Likeness.  Company may make use of Executives
name, photograph, drawing or other likeness in connection with the advertising or the giving of publicity to
Company, Parent or a program broadcast or content provided by Company, Parent or any Affiliates.  In such regard,
Company may make recordings, transcriptions, videotapes, films and other reproductions of any and all actions
performed by Executive in his or her capacity as an Executive of Company, including without limitation any
voice-over or announcing material provided by Executive (collectively Executive Performances).  Company shall
have the right to broadcast, display, license, assign or use any Executive Performances on a royalty-free basis
without additional compensation payable to Executive.

         7.       Noninterference.

                  While employed by the Company and for a period of two years thereafter, Executive agrees not to
interfere with the business of the Company by directly or indirectly soliciting, attempting to solicit, inducing,
or otherwise causing any executive or material employee of the Company or any of its Affiliates to terminate his
or her employment in order to become an employee, consultant or independent contractor to or for any other
Company.

         8.       Noncompetition.

                  Executive agrees that during the Term and for a period of two years thereafter, he shall not,
without the prior consent of the Company, directly or indirectly, have an interest in, be employed by, be
connected with, or have an interest in, as an employee, consultant, officer, director, partner, stockholder or
joint venturer, in any person or entity owning, managing, controlling, operating or otherwise participating or
assisting in any business that is in competition with the business of the Company or any of its Affiliates (a)
during the Term, in any location, and (b) for the two-year period following the termination of this Agreement, in
any province, state or jurisdiction in which the Company or any of its Affiliates was conducting business at the
date of termination of Executive's employment and continues to do so thereafter; provided, however, that the
foregoing shall not prevent Executive from being a stockholder of less than one percent of the issued and
outstanding securities of any class of a corporation listed on a national securities exchange or designated as
national market system securities on an interdealer quotation system by the National Association of Securities
Dealers, Inc.

         9.       Remedies.

                  Executive acknowledges that a breach or threatened breach by Executive of any the provisions of
Sections 5, 6, 7 or 8 will result in the Company and its stockholders suffering irreparable harm which cannot be
calculated or fully or adequately compensated by recovery of monetary damages alone.  Accordingly, Executive
agrees that the Company shall be entitled to interim, interlocutory and permanent injunctive relief, specific
performance and other equitable remedies, in addition to any other relief to which the Company may become
entitled should there be such a breach or threatened breach.

         10.      Personal Conduct.

                  Executive agrees to promptly and faithfully comply with all present and future policies,
requirements, directions, requests and rules and regulations of the Company in connection with the Companys
business, including without limitation the policies and requirements set forth in Parents Employee Handbook,
Code of Ethical Conduct and Financial Code of Conduct.  Executive further agrees to comply with all laws and
regulations pertaining to Executives employment with the Company.  Executive hereby agrees not to engage in any
activity that is in direct conflict with the essential interests of the Company.  Executive hereby acknowledges
that nothing set forth in the Employee Handbook, Code of Ethical Conduct or Financial Code of Conduct or any
other policy issued by the Company or Parent shall be deemed to create a separate contractual obligation,
guarantee or inducement between Executive and the Company.

         11.      Indemnification.

                  The Company shall indemnify Executive to the fullest extent permitted by law, in effect at the
time of the subject act or omission, and shall advance to Executive reasonable attorneys fees and expenses as
such fees and expenses are incurred (subject to an undertaking from Executive to repay such advances if it shall
be finally determined by a judicial decision which is not subject to further appeal that Executive was not
entitled to the reimbursement of such fees and expenses).  Executive shall be entitled to the protection of any
insurance policies that the Company may elect to maintain generally for the benefit of its directors and officers
against all costs, charges and expenses incurred or sustained by him in connection with any action, suit or
proceeding (other than any action, suit or proceeding arising under or relating to this Agreement) to which
Executive may be made a party by reason of his being or having been a director, officer or employee of the
Company or any of its subsidiaries, or his serving or having served any other enterprise as a director, officer
or employee at the request of the Company.  The Company covenants to maintain during Executives employment for
the benefit of Executive (in his capacity as an officer and director of the Company) Directors and Officers
Insurance providing benefits to Executive no less favorable, taken as a whole, than the benefits provided to the
other senior executives of the Company by the Directors and Officers Insurance maintained by the Company on the
date hereof; provided, however, that the Board may elect to terminate Directors and Officers Insurance for all
officers and directors, including Executive, if the Board determines in good faith that such insurance is not
available or is available only at unreasonable expense.

         12.      Miscellaneous.

                  (a)      Notices.  Any notices provided hereunder must be in writing and shall be deemed
effective upon the earlier of (1) personal delivery (including personal delivery by telecopy or telex), (2) on
the first day after mailing by overnight courier, or (3) on the third day after mailing by first class mail, to
the recipient at the address indicated below:

To the Company:

                  Salem Communications Holding Corporation
                  4880 Santa Rosa Road
                  Camarillo, California  93012
                  Attention:  Jonathan L. Block, Secretary

To Executive:

                  Edward G. Atsinger III
                  4880 Santa Rosa Road
                  Camarillo, CA  93012

or to such other address or to the attention of such other person as the recipient party shall have specified by
prior written notice to the sending party.

                  (b)      Severability.  If any provision of this Agreement is determined to be invalid or
unenforceable by a court of competent jurisdiction from which no further appeal lies or is taken, that provision
shall be deemed to be severed herefrom, and all remaining provisions of this Agreement shall not be affected
thereby and shall remain valid and enforceable.

                  (c)      Entire Agreement.  This document constitutes the final, complete, and exclusive
embodiment of the entire agreement and understanding between the parties related to the subject matter hereof and
supersedes and preempts any prior or contemporaneous understandings, agreements, or representations by or between
the parties, written or oral.  Without limiting the generality of the foregoing, except as provided in this
Agreement, all understandings and agreements, written or oral, relating to the employment of Executive by the
Company or the payment of any compensation or the provision of any benefit in connection therewith or otherwise,
are hereby terminated and shall be of no further force and effect.

                  (d)      Counterparts.  This Agreement may be executed in separate counterparts, any one of
which need not contain signatures of more than one party, but all of which taken together shall constitute one
and the same agreement.

                  (e)      Successors and Assigns.  This Agreement is intended to bind and inure to the benefit
of and be enforceable by Executive and the Company, and their respective successors and assigns, except that
Executive may not assign any of his duties hereunder and he may not assign any of his rights hereunder without
the prior written consent of the Company.

                  (f)      Amendments.  No amendments or other modifications to this Agreement may be made except
by a writing signed by both parties.  No amendment or waiver of this Agreement requires the consent of any
individual, partnership, corporation or other entity not a party to this Agreement.  Nothing in this Agreement,
express or implied, is intended to confer upon any third person any rights or remedies under or by reason of this
Agreement.

                  (g)      Attorneys' Fees.  If any legal proceeding is necessary to enforce or interpret the
terms of this Agreement, or to recover damages for breach therefore, the prevailing party shall be entitled to
reasonable attorney's fees, as well as costs and disbursements, in addition to other relief to which he or it may
be entitled.

                  (h)      Choice of Law.  All questions concerning the construction, validity and interpretation
of this Agreement shall be governed by the internal law, and not the law of conflicts, of the State of California.

                  (i)      Resolution of Disputes.  Company and Executive mutually agree to resolve any and all
legal claims arising from or in any way relating to Executives employment with Company through mediation or, if
mediation does not resolve the claim or dispute within ten (10) days of notice demanding mediation, by binding
arbitration under the Federal Arbitration Act subject to the terms and conditions provided below.
Notwithstanding the foregoing, insured workers compensation claims (other than wrongful discharge claims) and
claims for unemployment insurance are excluded from arbitration under this Agreement.  This Agreement does not
prevent the filing of charges with administrative agencies such as the Equal Employment Opportunity Commission,
the National Labor Relations Board, or equivalent state agencies.  Arbitration shall be conducted in Ventura
County, California in accordance with any of the following, at Executives election:  (a) the American
Arbitration Association, Employment Rules of Procedure, (b) the Rules of Procedure for Christian Conciliation
sponsored by the Christian Legal Society, or (c) the rules of procedure issued by another alternative dispute
resolution service mutually acceptable to Executive and Company.  Any award issued in accordance with this
Section 11(i) shall be rendered as a judgment in any trial court having competent jurisdiction.  Company shall
pay the arbitration fees and expenses, less any filing fee amount the Executive would otherwise have to pay to
pursue a comparable lawsuit in a United States district court in the jurisdiction where the dispute arises or
state court in the jurisdiction where the dispute arises, whichever is less.  All other rights, remedies,
exhaustion requirements, statutes of limitations and defenses applicable to claims asserted in a court of law
shall apply in the arbitration.  Executive expressly waives any presumption or rule, if any, which requires this
Agreement to be construed against the Company.

                   (j)     Integration.  This Agreement comprises the entire understanding of the parties with
respect to the subject matter and shall supersede all other prior written or oral agreements, including without
limitation the Old Employment Agreement.

                  (k)      Survival; Modification of Terms.  No change in Executives duties or salary shall
affect, alter, or otherwise release Executive from the covenants and agreements contained herein.  All
post-termination covenants, agreements, representations and warranties made herein by Executive shall survive the
expiration or termination of this Agreement or employment under this Agreement in accordance with their
respective terms and conditions.

                  IN WITNESS WHEREOF, the parties have executed this agreement effective as of the date first
written above.`

`"EXECUTIVE"`

| |  |                            | 
| |  | -------------------------- | 
| |  |                            | 
| |  | /s/ Edward G. Atsinger III | 
| |  |                            | 
| |  | Edward G. Atsinger III     | 
| |  |                            | 
| |  |                            | 
| |  |                            | 

`"COMPANY"

                                      SALEM COMMUNICATIONS HOLDING CORPORATION`

| |  |                                                                          | 
| |  | ------------------------------------------------------------------------ | 
| |  |                                                                          | 
| |  | /s/ Jonathan L. Block                                                    | 
| |  |                                                                          | 
| |  | Jonathan L. Block                                                        | 
| |  | Vice President                                                           | 
| |  |                                                                          | 
| |  | /s/ Roland S. Hinz                                                       | 
| |  |                                                                          | 
| |  | Roland S. Hinz                                                           | 
| |  | Chairman of the Compensation Committee, Salem
Communications Corporation | 





---



EXHIBIT 10.02.01

`EMPLOYMENT AGREEMENT


         This Employment Agreement (the "Agreement") is entered into as of July 1, 2004, by and between Stuart W. Epperson, an
individual ("Executive"), and Salem Communications Holding Corporation, a Delaware corporation (the "Company").

                                                               RECITALS

         WHEREAS, the Executive and the Company (as successor to its parent, Salem Communications Corporation, a Delaware corporation
("Parent")) are parties to the Employment Agreement, dated July 1, 2001 (the "Old Employment Agreement");

         WHEREAS, the Executive and the Company wish to terminate the Old Employment Agreement, effective as of midnight on June 30,
2004;

         WHEREAS, the Company desires to employ Executive in the capacity of Chairman of the Board of the Company on the terms and
conditions set forth herein; and

         WHEREAS, Executive desires to serve in such capacity on behalf of the Company and to provide to the Company the services
described herein on the terms and conditions set forth herein.

         NOW, THEREFORE, in consideration of the foregoing recitals, the terms and conditions set forth herein, and other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Executive and the Company hereby agree as
follows:

         1.       Employment By The Company And Term.

                  (a)      Full Time and Best Efforts.  Subject to the terms set forth herein, the Company agrees to employ Executive
as Chairman of the Board and Executive hereby accepts such employment.  As Chairman of the Board, Executive shall have the authority,
functions, duties, powers and responsibilities for Executive's corporate office and position as set forth in the Company's Bylaws
from time to time and such other authority, functions, duties, powers and responsibilities as the Board of Directors of the Company
(the "Board") may from time to time prescribe or delegate to Executive, in all cases to be consistent with Executive's corporate
offices and positions.  During the Term, Executive shall apply, on a full-time basis, all of his skill and experience to the
performance of his duties hereunder and shall not, without the prior consent of the Board, devote substantial amounts of time to
outside business activities.  The performance of Executive's duties shall be in Winston-Salem, North Carolina, subject to reasonable
travel as the performance of his duties in the business may require.  Notwithstanding the foregoing, Executive may devote a
reasonable amount of his time to civic, community, charitable or passive investment activities.




                  (b)      Company Policies.  The employment relationship between the parties shall be governed by the general
employment policies and practices of the Company and of Parent, including without limitation the policies described in Section 10 of
this Agreement, except that when the terms of this Agreement differ from or are in conflict with the Company's or Parents general
employment policies or practices, this Agreement shall control.

                  (c)      Term.  Executives term of employment under this Agreement shall commence as of the date hereof (the
Effective Date) and, subject to the terms hereof and the provisions for renewal set forth in Section 1(d) herein, shall terminate on
such date (the Termination Date) that is the earlier of: (1) June 30, 2007, or (2) the termination of Executives employment
pursuant to Section 4 of this Agreement.  The period from the Effective Date until the Termination Date shall be defined herein as
the Term.

                  (d)      Renewal.  Unless the Company or Executive shall have given the other party hereto notice (any such notice
to be given in accordance with Section 11(a) hereof) that this Agreement shall not be renewed at least ninety (90) days prior to the
end of the Term, the Term shall be automatically extended for a period of one year, with such procedure to be followed in each such
successive period.

         2.       Compensation And Benefits.

                  (a)      Cash Salary.  Executive shall receive for services to be rendered hereunder an annual base salary of Seven
Hundred Thousand Dollars ($700,000) (the "Base Salary").

                  (b)      Participation in Benefit Plans.  During the Term, Executive shall be entitled to participate in any group
insurance, hospitalization, medical, dental, health and accident, disability, compensation or other plan or program of the Company
now existing or established hereafter to the extent that he is eligible under the general provisions thereof.  The Company may, in
its sole discretion and from time to time, amend, eliminate or establish additional benefit programs as it deems appropriate.
Executive shall also participate in all fringe benefits offered by the Company to any of its senior executives.  The availability and
terms of such benefit plans shall be set by the Board of Directors of the Company, or its designated committee, and may change from
time-to-time.  Executive shall be required to comply with all conditions attendant to coverage by the benefit plans hereunder and
shall be entitled to benefits only in accordance with the terms and conditions of such plans as they may be enumerated from time to
time.

                  (c)      Perquisites.  During the Term, the Company shall provide Executive with the perquisites and other fringe
benefits generally made available to senior executives of the Company and any such other benefits as the Board of Directors, or its
designated committee, may elect to grant from time-to-time including the following:

                           (1)      Automobile Allowance.  The Company shall provide Executive, at no cost to Executive, the use of a
company-owned or company-leased vehicle of a cost and quality reasonably acceptable to the Company but, in any event, equal to or
exceeding the cost and quality of the vehicle presently used by Executive.  The Company shall pay, or reimburse Executive for, all
costs associated with operating, maintaining and insuring such automobile, provided such costs are itemized and presented to the
company in writing and in a form as then prescribed by the Company in its policies for the reimbursement of employee business
expenses;

                           (2)      Life Insurance.  The Company shall provide Executive the death benefit provided under a
split-dollar life insurance policy pursuant to a separate Split Dollar Life Insurance Agreement dated December 31, 2003, and entered
into by Executive and the Company;

                           (3)      Regulatory Filings.  The Company shall pay for all governmental and regulatory filings required by
Executive solely as a result of his position as an officer or director of the Company or its parent, Salem Communications Corporation
(Parent), including, but not limited to, all Section 16 filings required by Executive.  For avoidance of doubt, such filings would
include SEC Forms 4 and 5 and Schedule 13D and FCC ownership reports and transfer applications and would not include other filings
required in connection with the sale of company stock by Executive;

                           (4)      Regulatory Filings/Fees Associated with Option Exercises.  In the event Executive is
required to make regulatory filings as a result of his exercise of options granted him by the Company for the purchase of
stock of the Parent, the Company shall pay the cost of such filings, including any filing fee.  The benefits provided in
this Section 2(c)(4) shall include full reimbursement for any income and employment taxes applicable to such benefits;

                           (5)      Travel and Entertainment Expenses.  Reasonable, bona-fide Company-related entertainment and travel
expenses incurred by Executive in accordance with the Executive Handbook, Code of Ethical Conduct, Financial Code of Conduct and
other written policies, all as issued by the Company, relating thereto shall be reimbursed or paid by the Company; and,

                           (6)       Health Benefit.  Employer will pay the employee, spouse and dependents portions of the monthly
group health care premiums on behalf of Executive.

         3.       Bonuses.

         In addition to the other compensation of Executive as set forth herein, and subject to the provisions of Section 4 hereof,
Executive shall be eligible for an annual merit bonus in an amount to be determined at the discretion of the Board of Directors of
the Company, which bonus may be paid in cash, options or a combination thereof.  The annual bonus shall be driven by and
proportionate to GAAP-determined EBIDTA generated by the business activities of Parent reporting to Executive.




         4.       Termination Of Employment.

                   (a)     Termination For Cause.

                           (1)      Termination; Payment of Accrued Salary.  The Board may terminate Executive's employment with the
Company at any time for cause, immediately upon notice to Executive of the circumstances leading to such termination for cause. In
the event that Executive's employment is terminated for cause, Executive shall receive payment for all accrued salary through the
Termination Date, which in this event shall be the date upon which notice of termination is given. The Company shall have no further
obligation to pay severance of any kind nor to make any payment in lieu of notice.

                           (2)      Definition of Cause.  For the purposes of this Agreement, Cause shall mean, without limitation,
the following:  (A) the death of Executive; (B) any mental or physical impairment which prevents Executive at any time during the
Term from performing the essential functions of his full duties for a period of 180 days within any 270 day period and Executive
thereafter fails to return to work within 10 days of notice by the Company of intention to terminate (Disability); (C) continued
gross neglect, malfeasance or gross insubordination in performing duties assigned to Executive; (D) a conviction for a crime
involving moral turpitude; (E) an egregious act of dishonesty (including without limitation theft or embezzlement) in connection with
employment, or a malicious action by Executive toward Parent, Company, or their affiliates or related entities (together with Parent,
collectively Affiliates); (F) a violation of the provisions of Section 6(a) hereof; (G) a willful breach of this Agreement; (H)
disloyalty; and (I) material and repeated failure to carry out reasonably assigned duties or instructions consistent with Executives
position.

                   (b)     Termination by Executive.  Executive shall have the right, at his election, to terminate his employment
with the Company by notice to the Company to that effect: (1) if the Company shall have failed to substantially perform a material
condition or covenant of this Agreement ("Company's Material Breach") or (2) if the Company materially reduces or diminishes
Executive's powers and responsibilities hereunder; provided, however, that a termination under clauses (1) and (2) of this Section
4(b) shall not be effective until Executive shall have given notice to the Company specifying the claimed breach and, provided such
breach is curable, Company fails to correct the claimed breach within 30 days after the receipt of the applicable notice or such
longer term as may be reasonably required by the Company due to the nature of the claimed breach (but within 10 days if the failure
to perform is a failure to pay monies when due under the terms of this Agreement).

                  (c)      Termination Upon Disability.  The Company may terminate Executive's employment in the event Executive
suffers a Disability (as defined in Section 4(a)(2) hereof).  After the Termination Date, which in this event shall be the date upon
which notice of termination is given, no further compensation shall be payable under this Agreement except that Executive shall
receive the accrued portion of any salary and bonus through the Termination Date, less standard withholdings for tax and social
security purposes, payable, in the case of a bonus, upon such date or over such period of time which is in accordance with the
applicable bonus plan plus severance equal to 100% of his then Base Salary for 15 months without offset for any disability payments
Executive may receive, payable in equal monthly installments.  After the Termination Date, which in this event shall be the date upon
which notice of termination is given, any then unvested or time-vested stock options previously granted to Executive by the Company,
including without limitation those grants described in Section 3(c) of this Agreement, shall become immediately one hundred percent
(100%) vested.

                  (d)      Termination Without Cause; Failure to Renew.

                           (1)      Termination Payments.  In the event that, during the Initial Term, Executive's employment is
terminated by the Company other than pursuant to Section 4(a) or 4(c), or by Executive pursuant to Section 4(b), the Company shall
pay Executive as severance an amount equal to his then Base Salary for the longer of six months or the remainder of the Initial Term,
less standard withholdings for tax and social security purposes, payable in equal installments over six consecutive months, or, if
longer, the number of months remaining in the Initial Term, commencing immediately following termination, in monthly pro rata
payments commencing as of the Termination Date, plus the accrued portion of any bonus through the Termination Date, less standard
withholdings for tax and social security purposes, payable, in the case of a bonus, upon such date or over such period of time which
is in accordance with the applicable bonus plan.  In the event that during an Extended Term Executive's employment is terminated by
the Company other than pursuant to Section 4(a) or 4(c), or by Executive pursuant to Section 4(b), or if the Company shall fail to
renew the term of this Agreement at the expiration of the Initial Term (including any renewal term thereof), the Company shall pay
Executive as severance an amount equal to three months of his then Base Salary, less standard withholdings for tax and social
security purposes, payable in equal installments over three consecutive months commencing immediately following termination or
failure to renew in monthly pro rata payments commencing as of the Termination Date, plus the accrued portion of any bonus through
the Termination Date, less standard withholdings for tax and social security purposes, payable, in the case of a bonus, upon such
date or over such period of time which is in accordance with the applicable bonus plan.

                  (e)      Benefits Upon Termination.   All benefits provided under Section 2(b) hereof shall be extended at the
Executive's cost, to the extent permitted by the Company's insurance policies and benefit plans, for six months after Executive's
Termination Date, except (a) as required by law (e.g. COBRA health insurance continuation election) or (b) in the event of a
termination by the Company pursuant to Section 4(a).

                  (f)      Termination Upon Death.  If Executive dies prior to the expiration of the Term, the Company shall (1)
continue coverage of Executive's dependents (if any) under all applicable benefit plans or programs of the type listed above in
Section 2(b) herein for a period of 12 months, and (2) pay to Executive's estate the accrued portion of any salary and bonus through
the Termination Date, less standard withholdings for tax and social security purposes, payable, in the case of a bonus, upon such
date or over such period of time which is in accordance with the applicable bonus plan.  After the Termination Date, which in this
event shall be the date of Executives death, any then unvested or time-vested stock options previously granted to Executive by the
Company, including without limitation those grants described in Section 3(c) of this Agreement, shall become immediately one hundred
percent (100%) vested.

                  (g)      No Offset.  Executive shall have no duty to mitigate any of his damages or losses and, except as provided
in Section 3(a) hereof, the Company shall not be entitled to reduce or offset any payments owed to Executive hereunder for any reason.

         5.       Right Of First Refusal On Corporate Opportunities.

                  During the Term, Executive agrees that he shall, prior to exploiting a Corporate Opportunity (hereafter defined) for
his own account or for the benefit of an immediate family members account, offer the Company a right of first refusal with respect
to such Corporate Opportunity.  For purposes of this Section 5, "Corporate Opportunity" shall mean any business opportunity that is
in the same or a related business as any of the businesses in which the Company or any of its Affiliates is involved.  The
determination as to whether a business opportunity constitutes a Corporate Opportunity shall be made by the Nominating and Corporate
Governance Committee of Parent or a majority of the disinterested and independent members of the Board, and their determination shall
be based on an evaluation of: (a) the extent to which the Corporate Opportunity is within the Company's or any of its Affiliates'
existing lines of business or its existing plans to expand; (b) the extent to which the Corporate Opportunity supplements the
Company's or any of its Affiliates' existing lines of activity or complements the Company's or any of its Affiliates' existing
methods of service; (c) whether the Company has available resources that can be utilized in connection with the Corporate
Opportunity; (d) whether the Company is legally or contractually barred from utilizing the Corporate Opportunity; (e) the extent to
which utilization of the Corporate Opportunity by Executive would create conflicts of interest with the Company or any of its
Affiliates; and (f) any other factors the committee or such disinterested and independent Board members deem(s) appropriate under the
circumstances.

         6.       Executives Obligations.

                  (a)      Confidential Information. Executive agrees that, during the Term or at any time thereafter:
                           (1)      Executive shall not use for any purpose other than the duly authorized business of Company, or
disclose to any third party, any information relating to Company or any of its Affiliates which is proprietary to Company or any of
its Affiliates ("Confidential Information"), including any customer list, contact information, rate schedules, programming, data,
plans, intellectual property, trade secret or any written (including in any electronic form) or oral communication incorporating
Confidential Information in any way (except as may be required by law or in the performance of Executives duties under this
Agreement consistent with Company's policies) regardless of whether or not such information has been labeled as confidential; and

                           (2)      Executive shall comply with any and all confidentiality obligations of Company to a third party,
whether arising under a written agreement or otherwise.



                  (b)      Work For Hire.

                           (1)      The results and proceeds of Executives services to Company, including, without limitation, any
works of authorship resulting from Executives services during Executives employment with Company and/or any of its Affiliates and
any works in progress resulting from such services, shall be works-made-for-hire and Company shall be deemed the sole owner of any
and all rights of every nature in such works, whether such rights are now known or hereafter defined or discovered, with the right to
use the works in perpetuity in any manner Company determines in its sole discretion without any further payment to Executive. If, for
any reason, any of such results and proceeds are not legally deemed a work-made-for-hire and/or there are any rights in such results
and proceeds which do not accrue to Company under the preceding sentence, then Executive hereby irrevocably assigns and agrees to
assign any and all of Executives right, title and interest thereto, whether now known or hereafter defined or discovered, and
Company shall have the right to use the work in perpetuity in any location and in any manner Company determines in its sole
discretion without any further payment to Executive.

                           (2)      Executive shall do any and all things which Company may deem useful or desirable to establish or
document Company's rights in any such results and proceeds, including, without limitation, the execution of appropriate copyright,
trademark and/or patent applications, assignments or similar documents and, if Executive is unavailable or unwilling to execute such
documents, Executive hereby irrevocably designates the Chairman of the Board of Directors of Parent or his designee as Executives
attorney-in-fact with the power to execute such documents on Executives behalf. To the extent Executive has any rights in the
results and proceeds of Executives services under this Agreement that cannot be assigned as described above, Executive
unconditionally and irrevocably waives the enforcement of such rights.

                           (3)      Works-made-for-hire do not include subject matter that meets all of the following criteria:  (A)
is conceived, developed and created by Executive on Executives own time without using the Companys equipment, supplies or
facilities or any trade secrets or confidential information, (B) is unrelated to the actual or reasonably anticipated business or
research and development of Company of which Executive is or becomes aware; and (C) does not result from any work performed by
Executive for Company.

                  (c)      Return of Property. All documents, data, recordings, equipment or other property, whether tangible or
intangible, including all information stored in electronic form, obtained or prepared by or for Executive and utilized by Executive
in the course of Executives employment with Company or any of its Affiliates shall remain the exclusive property of Company and
shall not be removed from the premises of the Company under any circumstances whatsoever without the prior written consent of the
Company, except when (and only for the period) necessary to carry out Executive's duties hereunder, and if removed shall be
immediately returned to the Company upon any termination of his employment and no copies thereof shall be kept by Executive;
provided, however, that Executive shall be entitled to retain documents reasonably related to his prior interest as a shareholder.
Upon termination of employment, Executive shall promptly return all of Companys property to Company.

                  (d)      Use of Executives Name, Image and Likeness.  Company may make use of Executives name, photograph, drawing
or other likeness in connection with the advertising or the giving of publicity to Company, Parent or a program broadcast or content
provided by Company, Parent or any Affiliates.  In such regard, Company may make recordings, transcriptions, videotapes, films and
other reproductions of any and all actions performed by Executive in his or her capacity as an Executive of Company, including
without limitation any voice-over or announcing material provided by Executive (collectively Executive Performances).  Company
shall have the right to broadcast, display, license, assign or use any Executive Performances on a royalty-free basis without
additional compensation payable to Executive.

         7.       Noninterference.

                  While employed by the Company and for a period of two years thereafter, Executive agrees not to interfere with the
business of the Company by directly or indirectly soliciting, attempting to solicit, inducing, or otherwise causing any executive or
material employee of the Company or any of its Affiliates to terminate his or her employment in order to become an employee,
consultant or independent contractor to or for any other Company.

         8.       Noncompetition.

                  Executive agrees that during the Term and for a period of two years thereafter, he shall not, without the prior
consent of the Company, directly or indirectly, have an interest in, be employed by, be connected with, or have an interest in, as an
employee, consultant, officer, director, partner, stockholder or joint venturer, in any person or entity owning, managing,
controlling, operating or otherwise participating or assisting in any business that is in competition with the business of the
Company or any of its Affiliates (a) during the Term, in any location, and (b) for the two-year period following the termination of
this Agreement, in any province, state or jurisdiction in which the Company or any of its Affiliates was conducting business at the
date of termination of Executive's employment and continues to do so thereafter; provided, however, that the foregoing shall not
prevent Executive from being a stockholder of less than one percent of the issued and outstanding securities of any class of a
corporation listed on a national securities exchange or designated as national market system securities on an interdealer quotation
system by the National Association of Securities Dealers, Inc.

         9.       Remedies.

                  Executive acknowledges that a breach or threatened breach by Executive of any the provisions of Sections 5, 6, 7 or
8 will result in the Company and its stockholders suffering irreparable harm which cannot be calculated or fully or adequately
compensated by recovery of monetary damages alone.  Accordingly, Executive agrees that the Company shall be entitled to interim,
interlocutory and permanent injunctive relief, specific performance and other equitable remedies, in addition to any other relief to
which the Company may become entitled should there be such a breach or threatened breach.



         10.      Personal Conduct.

                  Executive agrees to promptly and faithfully comply with all present and future policies, requirements, directions,
requests and rules and regulations of the Company in connection with the Companys business, including without limitation the
policies and requirements set forth in Parents Employee Handbook, Code of Ethical Conduct and Financial Code of Conduct.  Executive
further agrees to comply with all laws and regulations pertaining to Executives employment with the Company.  Executive hereby
agrees not to engage in any activity that is in direct conflict with the essential interests of the Company.  Executive hereby
acknowledges that nothing set forth in the Employee Handbook, Code of Ethical Conduct or Financial Code of Conduct or any other
policy issued by the Company or Parent shall be deemed to create a separate contractual obligation, guarantee or inducement between
Executive and the Company.

         11.      Indemnification.

                  The Company shall indemnify Executive to the fullest extent permitted by law, in effect at the time of the subject
act or omission, and shall advance to Executive reasonable attorneys fees and expenses as such fees and expenses are incurred
(subject to an undertaking from Executive to repay such advances if it shall be finally determined by a judicial decision which is
not subject to further appeal that Executive was not entitled to the reimbursement of such fees and expenses).  Executive shall be
entitled to the protection of any insurance policies that the Company may elect to maintain generally for the benefit of its
directors and officers against all costs, charges and expenses incurred or sustained by him in connection with any action, suit or
proceeding (other than any action, suit or proceeding arising under or relating to this Agreement) to which Executive may be made a
party by reason of his being or having been a director, officer or employee of the Company or any of its subsidiaries, or his serving
or having served any other enterprise as a director, officer or employee at the request of the Company.  The Company covenants to
maintain during Executives employment for the benefit of Executive (in his capacity as an officer and director of the Company)
Directors and Officers Insurance providing benefits to Executive no less favorable, taken as a whole, than the benefits provided to
the other senior executives of the Company by the Directors and Officers Insurance maintained by the Company on the date hereof;
provided, however, that the Board may elect to terminate Directors and Officers Insurance for all officers and directors, including
Executive, if the Board determines in good faith that such insurance is not available or is available only at unreasonable expense.

         12.      Miscellaneous.

                  (a)      Notices.  Any notices provided hereunder must be in writing and shall be deemed effective upon the earlier
of (1) personal delivery (including personal delivery by telecopy or telex), (2) on the first day after mailing by overnight courier,
or (3) on the third day after mailing by first class mail, to the recipient at the address indicated below:



To the Company:

                  Salem Communications Holding Corporation
                  4880 Santa Rosa Road
                  Camarillo, California  93012
                  Attention:  Jonathan L. Block, Secretary

To Executive:

                  Stuart W. Epperson
                  3780 Will Scarlet Road
                  Winston-Salem, NC  27104

or to such other address or to the attention of such other person as the recipient party shall have specified by prior written notice
to the sending party.

                  (b)      Severability.  If any provision of this Agreement is determined to be invalid or unenforceable by a court
of competent jurisdiction from which no further appeal lies or is taken, that provision shall be deemed to be severed herefrom, and
all remaining provisions of this Agreement shall not be affected thereby and shall remain valid and enforceable.

                  (c)      Entire Agreement.  This document constitutes the final, complete, and exclusive embodiment of the entire
agreement and understanding between the parties related to the subject matter hereof and supersedes and preempts any prior or
contemporaneous understandings, agreements, or representations by or between the parties, written or oral.  Without limiting the
generality of the foregoing, except as provided in this Agreement, all understandings and agreements, written or oral, relating to
the employment of Executive by the Company or the payment of any compensation or the provision of any benefit in connection therewith
or otherwise, are hereby terminated and shall be of no further force and effect.

                  (d)      Counterparts.  This Agreement may be executed in separate counterparts, any one of which need not contain
signatures of more than one party, but all of which taken together shall constitute one and the same agreement.

                  (e)      Successors and Assigns.  This Agreement is intended to bind and inure to the benefit of and be enforceable
by Executive and the Company, and their respective successors and assigns, except that Executive may not assign any of his duties
hereunder and he may not assign any of his rights hereunder without the prior written consent of the Company.

                  (f)      Amendments.  No amendments or other modifications to this Agreement may be made except by a writing signed
by both parties.  No amendment or waiver of this Agreement requires the consent of any individual, partnership, corporation or other
entity not a party to this Agreement.  Nothing in this Agreement, express or implied, is intended to confer upon any third person any
rights or remedies under or by reason of this Agreement.

                  (g)      Attorneys' Fees.  If any legal proceeding is necessary to enforce or interpret the terms of this Agreement,
or to recover damages for breach therefore, the prevailing party shall be entitled to reasonable attorney's fees, as well as costs
and disbursements, in addition to other relief to which he or it may be entitled.

                  (h)      Choice of Law.  All questions concerning the construction, validity and interpretation of this Agreement
shall be governed by the internal law, and not the law of conflicts, of the State of California.

                  (i)      Resolution of Disputes.  Company and Executive mutually agree to resolve any and all legal claims arising
from or in any way relating to Executives employment with Company through mediation or, if mediation does not resolve the claim or
dispute within ten (10) days of notice demanding mediation, by binding arbitration under the Federal Arbitration Act subject to the
terms and conditions provided below.  Notwithstanding the foregoing, insured workers compensation claims (other than wrongful
discharge claims) and claims for unemployment insurance are excluded from arbitration under this Agreement.  This Agreement does not
prevent the filing of charges with administrative agencies such as the Equal Employment Opportunity Commission, the National Labor
Relations Board, or equivalent state agencies.  Arbitration shall be conducted in Ventura County, California in accordance with any
of the following, at Executives election:  (a) the American Arbitration Association, Employment Rules of Procedure, (b) the Rules of
Procedure for Christian Conciliation sponsored by the Christian Legal Society, or (c) the rules of procedure issued by another
alternative dispute resolution service mutually acceptable to Executive and Company.  Any award issued in accordance with this
Section 11(i) shall be rendered as a judgment in any trial court having competent jurisdiction.  Company shall pay the arbitration
fees and expenses, less any filing fee amount the Executive would otherwise have to pay to pursue a comparable lawsuit in a United
States district court in the jurisdiction where the dispute arises or state court in the jurisdiction where the dispute arises,
whichever is less.  All other rights, remedies, exhaustion requirements, statutes of limitations and defenses applicable to claims
asserted in a court of law shall apply in the arbitration.  Executive expressly waives any presumption or rule, if any, which
requires this Agreement to be construed against the Company.

                   (j)     Integration.  This Agreement comprises the entire understanding of the parties with respect to the subject
matter and shall supersede all other prior written or oral agreements, including without limitation the Old Employment Agreement.

                                                  {Continued on the following page.}



                  (k)      Survival; Modification of Terms.  No change in Executives duties or salary shall affect, alter, or
otherwise release Executive from the covenants and agreements contained herein.  All post-termination covenants, agreements,
representations and warranties made herein by Executive shall survive the expiration or termination of this Agreement or employment
under this Agreement in accordance with their respective terms and conditions.

                  IN WITNESS WHEREOF, the parties have executed this agreement effective as of the date first written above.`

`"EXECUTIVE"`

| |  |                        | 
| |  | ---------------------- | 
| |  |                        | 
| |  | /s/ Stuart W. Epperson | 
| |  |                        | 
| |  | Stuart W. Epperson     | 
| |  |                        | 
| |  |                        | 
| |  |                        | 

`"COMPANY"

                                      SALEM COMMUNICATIONS HOLDING CORPORATION`

| |  |                                                                          | 
| |  | ------------------------------------------------------------------------ | 
| |  |                                                                          | 
| |  | /s/ Jonathan L. Block                                                    | 
| |  |                                                                          | 
| |  | Jonathan L. Block                                                        | 
| |  | Vice President                                                           | 
| |  |                                                                          | 
| |  | /s/ Roland S. Hinz                                                       | 
| |  |                                                                          | 
| |  | Roland S. Hinz                                                           | 
| |  | Chairman of the Compensation Committee, Salem
Communications Corporation | 





---



EXHIBIT 31.1

Certification of Chief Executive Officer

I, Edward G. Atsinger III, certify that:

|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                       | 
|-- | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|1. |     | I have reviewed this report on Form 10-Q of
      Salem Communications Corporation;                                                                                                                                                                                                                                                                                                                                   | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                       | 
|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))
      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) | 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                                                                                                            | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                       | 
|   | (c) | 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.                                                                                                                                                                                                                                | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                       | 
|   |     | Dated: August 6, 2004                                                                                                                                                                                                                                                                                                                                                                                                 | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                       | 
|   |     | By: /s/ EDWARD G. ATSINGER III                                                                                                                                                                                                                                                                                                                                                                                        | 

| |  |                         | 
| |  | ----------------------- | 
| |  | Edward G. Atsinger III  | 
| |  | Chief Executive Officer | 
| |  |                         | 
| |  |                         | 

A signed original of this written statement required by Section
302 of the Sarbanes-Oxley Act of 2002 or other document authenticating,
acknowledging, or otherwise adopting the signature that appears in typed form
within the electronic version of this written statement required by Section 302
has been provided to Salem Communications Corporation and will be retained by
Salem Communications Corporation and furnished to the Securities and Exchange
Commission or its staff upon request.





---

EXHIBIT 31.2

Certification of Chief Financial Officer

I, David A.R. Evans, certify that:

|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                       | 
|-- | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|1. |     | I have reviewed this report on Form 10-Q of
      Salem Communications Corporation;                                                                                                                                                                                                                                                                                                                                   | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                       | 
|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))
      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) | 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                                                                                                            | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                       | 
|   | (c) | 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.                                                                                                                                                                                                                                | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                       | 
|   |     | Dated: August 6, 2004                                                                                                                                                                                                                                                                                                                                                                                                 | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                       | 
|   |     | By: /s/ DAVID A.R. EVANS                                                                                                                                                                                                                                                                                                                                                                                              | 

| |  |                         | 
| |  | ----------------------- | 
| |  | David A.R. Evans        | 
| |  | Chief Financial Officer | 
| |  |                         | 
| |  |                         | 

A signed original of this written statement required by Section
302 of the Sarbanes-Oxley Act of 2002 or other document authenticating,
acknowledging, or otherwise adopting the signature that appears in typed form
within the electronic version of this written statement required by Section 302
has been provided to Salem Communications Corporation and will be retained by
Salem Communications Corporation and furnished to the Securities and Exchange
Commission or its staff upon request.





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EXHIBIT 32.1

CERTIFICATION PURSUANT TO18 U.S.C. SECTION
1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned hereby certifies, in his capacity as President
and Chief Executive Officer of Salem Communications Corporation (the Company),
for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that based on his knowledge:

- the Quarterly Report of the Company on Form 10-Q for the
  period ended June 30, 2004 (the Report) fully complies with the
  requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act
  of 1934; and

- the information contained in the Report fairly presents, in
  all material respects, the financial condition and results of operations of
  the Company.

| | Dated: August 6, 2004 |                                       | 
| | --------------------- | ------------------------------------- | 
| |                       | By: /s/ EDWARD G. ATSINGER
      III  | 
| |                       |                                       | 
| |                       | Edward G. Atsinger III                | 
| |                       | President and Chief Executive Officer | 

A signed original of this written statement required by Section
906 of the Sarbanes-Oxley Act of 2002 or other document authenticating,
acknowledging, or otherwise adopting the signature that appears in typed form
within the electronic version of this written statement required by Section 906
has been provided to Salem Communications Corporation and will be retained by
Salem Communications Corporation and furnished to the Securities and Exchange
Commission or its staff upon request.





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EXHIBIT 32.2

CERTIFICATION PURSUANT TO18 U.S.C. SECTION
1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned hereby certifies, in his capacity as Senior Vice
President and Chief Financial Officer of Salem Communications Corporation (the
Company), for purposes of 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that based on his
knowledge:

- the Quarterly Report of the Company on Form 10-Q for the
  period ended June 30, 2004 (the Report) fully complies with the
  requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act
  of 1934; and

- the information contained in the Report fairly presents, in
  all material respects, the financial condition and results of operations of
  the Company.

| | Dated: August 6, 2004 |                                                            | 
| | --------------------- | ---------------------------------------------------------- | 
| |                       | By: /s/ DAVID A.R. EVANS                                   | 
| |                       |                                                            | 
| |                       | David A.R. Evans                                           | 
| |                       | Executive Vice President and Chief
      Financial Officer | 
| |                       |                                                            | 

A signed original of this written statement required by Section
906 of the Sarbanes-Oxley Act of 2002 or other document authenticating,
acknowledging, or otherwise adopting the signature that appears in typed form
within the electronic version of this written statement required by Section 906
has been provided to Salem Communications Corporation and will be retained by
Salem Communications Corporation and furnished to the Securities and Exchange
Commission or its staff upon request.





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