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 QUARTERLY PERIOD ENDED JUNE 30, 2003

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 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 July 31, 2003,
there were 17,933,767 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 |                                                                                                     |  | 3        |   
|                                     | Item 1. Financial Statements                                                                        |  |          | 3  | 
|                                     | Item 2. Managements Discussion and Analysis of Financial
      Condition and Results of Operations |  |          | 17 | 
|                                     | Item 3. Quantitative and Qualitative Disclosures About Market
      Risk                            |  |          | 29 | 
|                                     | Item 4. Controls and Procedures                                                                     |  |          | 30 | 
|PART II 
      OTHER INFORMATION    |                                                                                                     |  | 30       |   
|                                     | Item 1. Legal Proceedings                                                                           |  |          | 30 | 
|                                     | Item 2. Changes In Securities and Use of
    Proceeds                                               |  |          | 30 | 
|                                     | Item 3. Defaults Upon Senior Securities                                                             |  |          | 30 | 
|                                     | Item 4. Submission of Matters to a Vote of Security
      Holders                                   |  |          | 31 | 
|                                     | Item 5. Other Information                                                                           |  |          | 31 | 
|                                     | Item 6. Exhibits and Reports on Form 8-K                                                            |  |          | 32 | 
|SIGNATURES                           |                                                                                                     |  | 39       |   
|EXHIBIT INDEX                        |                                                                                                     |  | 40       |   

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, 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 of the statements. Such statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from expectations including, but not limited to, Salems
ability to close and integrate announced transactions, competition in the radio
broadcast, publishing and Internet industries and from new technologies, market
acceptance of recently launched music formats and adverse economic conditions.
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).

PART I  FINANCIAL INFORMATION

SALEM COMMUNICATIONS CORPORATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)







3



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SALEM COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

|                                                                                                     |                                                                                                                                                                                         |                                      |         |              |  |          |         |             |  | 
|---------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------ | ------- | ------------ |  | -------- | ------- | ----------- |  | 
|                                                                                                     |                                                                                                                                                                                         |                                      |         | December 31, |  | June 30,
|                                                                                                     |                                                                                                                                                                                         |                                      |         | 2002         |  | 2003    
|                                                                                                     |                                                                                                                                                                                         |                                      |         |              |  |         
|                                                                                                     |                                                                                                                                                                                         |                                      |         |              |  |          |         | (Unaudited)
|                                                                                                     |                                                                                                                                                                                         | ASSETS                               |         |              |  |          |         |             |  | 
|Current assets:                                                                                     
|                                                                                                     | Cash and
      cash equivalents                                                                                                                                                         |                                      | $       | 26,325       |  |          | $       | 3,993       | 
|                                                                                                     | Restricted cash                                                                                                                                                                         |                                      |         | 107,661      |  |          |         |            | 
|                                                                                                     | Accounts
      receivable (less allowance for doubtful accounts of $7,803 in 2002 and
      $8,145 in 2003)                                                                             |                                      |         | 30,696       |  |          |         | 30,871      | 
|                                                                                                     | Other
      receivables                                                                                                                                                                 |                                      |         | 1,990        |  |          |         | 2,969       | 
|                                                                                                     | Prepaid
      expenses                                                                                                                                                                  |                                      |         | 1,647        |  |          |         | 1,389       | 
|                                                                                                     | Due from stockholders                                                                                                                                                                   |                                      |         | 223          |  |          |         | 167         | 
|                                                                                                     | Deferred income taxes                                                                                                                                                                   |                                      |         | 2,281        |  |          |         | 4,043       | 
|                                                                                                     |                                                                                                                                                                                         |                                      |         |              |  |          |         |            
|Total current assets                                                                                 |                                                                                                                                                                                         |                                      | 170,823 |              |  |          | 43,432  |            
|Property,
      plant and equipment, net                                                             |                                                                                                                                                                                         |                                      | 99,194  |              |  |          | 96,298  |            
|Broadcast
      licenses                                                                             |                                                                                                                                                                                         |                                      | 363,203 |              |  |          | 363,608 |            
|Goodwill                                                                                             |                                                                                                                                                                                         |                                      | 12,108  |              |  |          | 11,129  |            
|Amortizable intangible assets, net
of accumulated amortization of $19,757 in 2002 and $8,310 in 2003 |                                                                                                                                                                                         |                                      | 5,197   |              |  |          | 5,031   |            
|Bond issue costs                                                                                     |                                                                                                                                                                                         |                                      | 7,854   |              |  |          | 6,009   |            
|Fair value of interest rate swap                                                                     |                                                                                                                                                                                         |                                      | 7,790   |              |  |          | 7,316   |            
|Due from stockholders                                                                                |                                                                                                                                                                                         |                                      | 82      |              |  |          |        |            
|Other assets                                                                                         |                                                                                                                                                                                         |                                      | 5,958   |              |  |          | 6,427   |            
|                                                                                                     |                                                                                                                                                                                         |                                      |         |              |  |          |         |            
|Total assets                                                                                         |                                                                                                                                                                                         | $                                    | 672,209 |              |  | $        | 539,250 |            
|                                                                                                     |                                                                                                                                                                                         |                                      |         |              |  |          |         |            
|                                                                                                     |                                                                                                                                                                                         | LIABILITIES AND STOCKHOLDERS EQUITY |         |              |  |          |         |             |  | 
|Current liabilities:                                                                                
|                                                                                                     | Accounts payable                                                                                                                                                                        |                                      | $       | 1,107        |  |          | $       | 245         | 
|                                                                                                     | Accrued expenses                                                                                                                                                                        |                                      |         | 3,492        |  |          |         | 4,470       | 
|                                                                                                     | Accrued
      compensation and related expenses                                                                                                                                         |                                      |         | 4,718        |  |          |         | 5,055       | 
|                                                                                                     | Accrued interest                                                                                                                                                                        |                                      |         | 10,103       |  |          |         | 7,375       | 
|                                                                                                     | Deferred revenue                                                                                                                                                                        |                                      |         | 1,317        |  |          |         | 1,234       | 
|                                                                                                     | Income taxes payable                                                                                                                                                                    |                                      |         | 612          |  |          |         | 32          | 
|                                                                                                     | Current
      portion of long-term debt and capital lease obligations                                                                                                                   |                                      |         | 100,029      |  |          |         | 29          | 
|                                                                                                     |                                                                                                                                                                                         |                                      |         |              |  |          |         |            
|Total current liabilities                                                                            |                                                                                                                                                                                         |                                      | 121,378 |              |  |          | 18,440  |            
|Long-term
      debt and capital lease obligations, less current portion                             |                                                                                                                                                                                         |                                      | 350,908 |              |  |          | 323,419 |            
|Deferred income taxes                                                                                |                                                                                                                                                                                         |                                      | 26,447  |              |  |          | 25,567  |            
|Deferred revenue                                                                                     |                                                                                                                                                                                         |                                      | 738     |              |  |          | 3,469   |            
|Other liabilities                                                                                    |                                                                                                                                                                                         |                                      | 810     |              |  |          | 623     |            
|                                                                                                     |                                                                                                                                                                                         |                                      |         |              |  |          |         |            
|Stockholders equity:                                                                               
|                                                                                                     | Class A common stock, $0.01 par value; authorized 80,000,000
      shares; issued and outstanding 17,930,417 and 17,933,767 shares at
December 31, 2002 and June 30, 2003, respectively |                                      |         | 179          |  |          |         | 179         | 
|                                                                                                     | 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                                                                                                                                                        |                                      |         | 147,968      |  |          |         | 148,018     | 
|                                                                                                     | Retained earnings                                                                                                                                                                       |                                      |         | 23,725       |  |          |         | 19,479      |  | 
|                                                                                                     |                                                                                                                                                                                         |                                      |         |              |  |          |         |            
|Total stockholders equity                                                                           |                                                                                                                                                                                         |                                      | 171,928 |              |  |          | 167,732 |            
|                                                                                                     |                                                                                                                                                                                         |                                      |         |              |  |          |         |            
|Total
      liabilities and stockholders equity                                                     |                                                                                                                                                                                         | $                                    | 672,209 |              |  | $        | 539,250 |            
|                                                                                                     |                                                                                                                                                                                         |                                      |         |              |  |          |         |            

See accompanying notes

4



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

|                                                                           |                                                                                                                                                                                                                                                                                         |   |                    |        |                  |   |            |        |      |   |            |         |   |   |            |         |  
|-------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------------ | ------ | ---------------- | - | ---------- | ------ | ---- | - | ---------- | ------- | - | - | ---------- | ------- | -
|                                                                           |                                                                                                                                                                                                                                                                                         |   | Three Months Ended |        | Six Months Ended
|                                                                           |                                                                                                                                                                                                                                                                                         |   | June 30,           |        | June 30,        
|                                                                           |                                                                                                                                                                                                                                                                                         |   |                    |        |                 
|                                                                           |                                                                                                                                                                                                                                                                                         |   | 2002               |        | 2003             |   | 2002       |        | 2003
|                                                                           |                                                                                                                                                                                                                                                                                         |   |                    |        |                  |   |            |        |     
|Gross broadcasting revenue                                                 |                                                                                                                                                                                                                                                                                         | $ | 43,618             |        |                  | $ | 47,379     |        |      | $ | 82,588     |         |   | $ | 89,435     |         |  
|Less agency commissions                                                    |                                                                                                                                                                                                                                                                                         |   | 3,552              |        |                  |   | 3,951      |        |      |   | 6,802      |         |   |   | 7,301      |        
|                                                                           |                                                                                                                                                                                                                                                                                         |   |                    |        |                  |   |            |        |      |   |            |         |   |   |            |        
|Net broadcasting revenue                                                   |                                                                                                                                                                                                                                                                                         |   | 40,066             |        |                  |   | 43,428     |        |      |   | 75,786     |         |   |   | 82,134     |        
|Other media revenue                                                        |                                                                                                                                                                                                                                                                                         |   | 1,856              |        |                  |   | 2,234      |        |      |   | 3,551      |         |   |   | 4,155      |        
|                                                                           |                                                                                                                                                                                                                                                                                         |   |                    |        |                  |   |            |        |      |   |            |         |   |   |           
|Total revenue                                                              |                                                                                                                                                                                                                                                                                         |   | 41,922             |        |                  |   | 45,662     |        |      |   | 79,337     |         |   |   | 86,289     |        
|Operating expenses:                                                       
|                                                                           | Broadcasting operating expenses,
exclusive of depreciation and amortization shown below (including $251 and $220 for the quarters ended June 30, 2002
and 2003, respectively, and $500 and $511 for the six months
ended June 30, 2002 and 2003, respectively, paid to related parties) |   |                    | 26,888 |                  |   |            | 27,505 |      |   |            | 51,573  |   |   |            | 53,843  |  
|                                                                           | Costs of denied tower site and license upgrade                                                                                                                                                                                                                                          |   |                    |       |                  |   |            |       |      |   |            |        |   |   |            | 2,202   |  
|                                                                           | Legal settlement                                                                                                                                                                                                                                                                        |   |                    | 2,300  |                  |   |            |       |      |   |            | 2,300   |   |   |            |        |  
|                                                                           | Other media operating expenses, exclusive of depreciation
and amortization shown below                                                                                                                                                                                                  |   |                    | 1,702  |                  |   |            | 2,116  |      |   |            | 3,735   |   |   |            | 3,976   |  
|                                                                           | Corporate expenses,
exclusive of depreciation and amortization shown below (including $48 and $31
for the quarters ended June 30, 2002 and 2003, respectively, and $112 and $181 for the six months
ended June 30, 2002 and 2003, respectively, paid to related parties)                |   |                    | 3,731  |                  |   |            | 4,027  |      |   |            | 7,418   |   |   |            | 8,071   |  
|                                                                           | Depreciation and amortization
(including $166 and $289 for the quarters ended June 30, 2002 and 2003, respectively, and $341 and $581 for the six months
ended June 30, 2002 and 2003, respectively, for other media businesses)                                                        |   |                    | 2,905  |                  |   |            | 3,070  |      |   |            | 5,757   |   |   |            | 6,095   |  
|                                                                           |                                                                                                                                                                                                                                                                                         |   |                    |        |                  |   |            |        |      |   |            |         |   |   |           
|Total operating expenses                                                   |                                                                                                                                                                                                                                                                                         |   | 37,526             |        |                  |   | 36,718     |        |      |   | 70,783     |         |   |   | 74,187     |        
|                                                                           |                                                                                                                                                                                                                                                                                         |   |                    |        |                  |   |            |        |      |   |            |         |   |   |           
|Operating income                                                           |                                                                                                                                                                                                                                                                                         |   | 4,396              |        |                  |   | 8,944      |        |      |   | 8,554      |         |   |   | 12,102     |        
|Other income (expense):                                                    |                                                                                                                                                                                                                                                                                         |   |                    |        |                  |   |            |        |      |   |            |         |   |   |            |        
|                                                                           | Interest income                                                                                                                                                                                                                                                                         |   |                    | 22     |                  |   |            | 17     |      |   |            | 62      |   |   |            | 171     |  
|                                                                           | Interest expense                                                                                                                                                                                                                                                                        |   |                    | (6,719 | )                |   |            | (5,600 | )    |   |            | (13,425 | ) |   |            | (12,236 | )
|                                                                           | Loss on early redemption of long-term debt                                                                                                                                                                                                                                              |   |                    |       |                  |   |            |       |      |   |            |        |   |   |            | (6,440  | )
|                                                                           | Loss on sale of assets                                                                                                                                                                                                                                                                  |   |                    | (225   | )                |   |            |       |      |   |            | (451    | ) |   |            |        |  
|                                                                           | Other expense, net                                                                                                                                                                                                                                                                      |   |                    | (112   | )                |   |            | (92    | )    |   |            | (276    | ) |   |            | (161    | )
|                                                                           |                                                                                                                                                                                                                                                                                         |   |                    |        |                  |   |            |        |      |   |            |         |   |   |           
|Income (loss) before income taxes and discontinued operations              |                                                                                                                                                                                                                                                                                         |   | (2,638             | )      |                  |   | 3,269      |        |      |   | (5,536     | )       |   |   | (6,564     | )      
|Provision (benefit) for income taxes                                       |                                                                                                                                                                                                                                                                                         |   | (979               | )      |                  |   | 1,427      |        |      |   | (2,096     | )       |   |   | (2,318     | )      
|                                                                           |                                                                                                                                                                                                                                                                                         |   |                    |        |                  |   |            |        |      |   |            |         |   |   |           
|Income (loss) before discontinued operations                               |                                                                                                                                                                                                                                                                                         |   | (1,659             | )      |                  |   | 1,842      |        |      |   | (3,440     | )       |   |   | (4,246     | )      
|Income from discontinued operations, net of tax                            |                                                                                                                                                                                                                                                                                         |   | 31                 |        |                  |   |           |        |      |   | 13         |         |   |   |           |        
|                                                                           |                                                                                                                                                                                                                                                                                         |   |                    |        |                  |   |            |        |      |   |            |         |   |   |           
|Net income (loss)                                                          |                                                                                                                                                                                                                                                                                         | $ | (1,628             | )      |                  | $ | 1,842      |        |      | $ | (3,427     | )       |   | $ | (4,246     | )      
|                                                                           |                                                                                                                                                                                                                                                                                         |   |                    |        |                  |   |            |        |      |   |            |         |   |   |            |         |  
|Basic and diluted earnings (loss) per share before discontinued operations |                                                                                                                                                                                                                                                                                         | $ | (0.07              | )      |                  | $ | 0.08       |        |      | $ | (0.15      | )       |   | $ | (0.18      | )      
|Income from discontinued operations per share                              |                                                                                                                                                                                                                                                                                         |   |                   |        |                  |   |           |        |      |   |           |         |   |   |           |        
|                                                                           |                                                                                                                                                                                                                                                                                         |   |                    |        |                  |   |            |        |      |   |            |         |   |   |           
|Basic and diluted net earnings (loss) per share                            |                                                                                                                                                                                                                                                                                         | $ | (0.07              | )      |                  | $ | 0.08       |        |      | $ | (0.15      | )       |   | $ | (0.18      | )      
|                                                                           |                                                                                                                                                                                                                                                                                         |   |                    |        |                  |   |            |        |      |   |            |         |   |   |            |         |  
|Basic and diluted weighted average shares
outstanding                      |                                                                                                                                                                                                                                                                                         |   | 23,469,604         |        |                  |   | 23,573,321 |        |      |   | 23,463,884 |         |   |   | 23,484,817 |        
|                                                                           |                                                                                                                                                                                                                                                                                         |   |                    |        |                  |   |            |        |      |   |            |         |   |   |            |         |  
|Diluted weighted average shares
outstanding                                |                                                                                                                                                                                                                                                                                         |   | 23,469,604         |        |                  |   | 23,485,522 |        |      |   | 23,463,884 |         |   |   | 23,484,817 |        
|                                                                           |                                                                                                                                                                                                                                                                                         |   |                    |        |                  |   |            |        |      |   |            |         |   |   |            |         |  

See accompanying notes

5



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SALEM COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS(IN THOUSANDS)(UNAUDITED)

|                                                                                        |                                                     |                                           |         |                  |        |      |         |        |         |  
|--------------------------------------------------------------------------------------- | --------------------------------------------------- | ----------------------------------------- | ------- | ---------------- | ------ | ---- | ------- | ------ | ------- | -
|                                                                                        |                                                     |                                           |         | Six Months Ended
|                                                                                        |                                                     |                                           |         | June 30,        
|                                                                                        |                                                     |                                           |         |                 
|                                                                                        |                                                     |                                           |         | 2002             |        | 2003
|                                                                                        |                                                     |                                           |         |                  |        |     
|OPERATING ACTIVITIES                                                                    |                                                     |                                           |         |                  |        |      |         |       
|Net loss                                                                                |                                                     | $                                         | (3,427  | )                |        | $    | (4,246  | )     
|Adjustments to reconcile net income to net cash provided by
      operating activities: |                                                     |                                           |         |                  |        |      |         |       
|                                                                                        | Loss on early retirement of debt                    |                                           |         |                 |        |      |         | 6,440  |        
|                                                                                        | Cost of denied tower site and license upgrade       |                                           |         |                 |        |      |         | 2,202 
|                                                                                        | Discontinued operations                             |                                           |         | 31               |        |      |         |      
|                                                                                        | Depreciation and amortization                       |                                           |         | 5,757            |        |      |         | 6,095 
|                                                                                        | Amortization of bond issue costs and bank loan fees |                                           |         | 626              |        |      |         | 769    |        
|                                                                                        | Provision for bad debts                             |                                           |         | 2,582            |        |      |         | 2,618  |        
|                                                                                        | Deferred income taxes                               |                                           |         | (2,388           | )      |      |         | (2,642 | )      
|                                                                                        | Loss on sale of assets                              |                                           |         | 451              |        |      |         |       |        
|                                                                                        | Changes in
      operating assets and liabilities: 
|                                                                                        |                                                     | Accounts receivable                       |         |                  | (4,296 | )    |         |        | (2,793  | )
|                                                                                        |                                                     | Prepaid expenses and other current
assets |         |                  | (93    | )    |         |        | (665    | )
|                                                                                        |                                                     | Accounts payable and accrued expenses     |         |                  | 2,842  |      |         |        | 468     |  
|                                                                                        |                                                     | Deferred revenue                          |         |                  | (248   | )    |         |        | 2,648   |  
|                                                                                        |                                                     | Other liabilities                         |         |                  | 222    |      |         |        | (186    | )
|                                                                                        |                                                     | Income taxes payable                      |         |                  | (10    | )    |         |        | (580    | )
|                                                                                        |                                                     |                                           |         |                  |        |      |        
|Net cash
      provided by operating activities                                         |                                                     |                                           | 2,049   |                  |        |      | 10,128  |       
|                                                                                       
|INVESTING ACTIVITIES                                                                   
|Capital expenditures                                                                    |                                                     |                                           | (7,258  | )                |        |      | (3,109  | )     
|Deposits on radio station acquisitions                                                  |                                                     |                                           | (65     | )                |        |      |        |       
|Purchases of radio stations                                                             |                                                     |                                           | (44,539 | )                |        |      | (241    | )     
|Proceeds
      from sale of property, plant and equipment and intangible assets         |                                                     |                                           | 6       |                  |        |      |        |       
|Other assets                                                                            |                                                     |                                           | (873    | )                |        |      | (1,732  | )     
|                                                                                        |                                                     |                                           |         |                  |        |      |        
|Net cash
      used in investing activities                                             |                                                     |                                           | (52,729 | )                |        |      | (5,082  | )     
|                                                                                       
|FINANCING ACTIVITIES                                                                   
|Proceeds
      from issuance of long-term debt and notes payable                        |                                                     |                                           | 36,300  |                  |        |      | 3,000   |       
|Payments
      of long-term debt and notes payable                                      |                                                     |                                           | (4,000  | )                |        |      | (30,000 | )     
|Proceeds
      from exercise of stock options                                           |                                                     |                                           | 544     |                  |        |      | 50      |       
|Payments
      on capital lease obligations                                             |                                                     |                                           | (23     | )                |        |      | (15     | )     
|Payments
      of costs related to bank credit facility and debt refinancing            |                                                     |                                           | (514    | )                |        |      | (190    | )     
|Payments
      of bond issue costs                                                      |                                                     |                                           | (178    | )                |        |      | (223    | )     
|                                                                                        |                                                     |                                           |         |                  |        |      |        
|Net cash
      provided by (used in) financing activities                               |                                                     |                                           | 32,129  |                  |        |      | (27,378 | )     
|                                                                                        |                                                     |                                           |         |                  |        |      |        
|Net
      decrease in cash and cash equivalents                                         |                                                     |                                           | (18,551 | )                |        |      | (22,332 | )     
|Cash and
      cash equivalents at beginning of period                                  |                                                     |                                           | 23,921  |                  |        |      | 26,325  |       
|                                                                                        |                                                     |                                           |         |                  |        |      |        
|Cash and
      cash equivalents at end of period                                        |                                                     | $                                         | 5,370   |                  |        | $    | 3,993   |       
|                                                                                        |                                                     |                                           |         |                  |        |      |        
|Supplemental disclosures
of cash flow information:                                      |                                                     |                                           |         |                  |        |      |         |       
|                                                                                        | Cash paid
      during the period for:              |                                           |         |                  |        |     
|                                                                                        |                                                     | Interest                                  |         | $                | 15,419 |      |         | $      | 15,656  |  
|                                                                                        |                                                     | Income taxes                              |         |                  | 134    |      |         |        | 945,725 |  

See accompanying notes

6



---



SALEM COMMUNICATIONS CORPORATIONNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

Information with respect to
the three months and six months ended June 30, 2003 and 2002 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, 2002.

NOTE 2. STOCK-BASED COMPENSATION

The Company accounts for
its employee stock plan under the intrinsic value method prescribed by Accounting
Principles Board Opinion (APB) No. 25, Accounting for Stock
Issued to Employees, and related interpretations, and has adopted the
disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based
Compensation and as amended by SFAS No. 148, Accounting for
Stock-Based CompensationTransition and Disclosure, an amendment of
FASB Statement No. 123.

SFAS No. 123, and 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
income (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 net income (loss) per share for each of the three and six
months ended June 30, 2003 and 2002 would have changed to the following pro forma
amounts (in thousands, except per share data):

| |                                                                                                            |   |                                               |   |                  |   |       |   |      |   |        |   |  |   |        |   | 
| | ---------------------------------------------------------------------------------------------------------- | - | --------------------------------------------- | - | ---------------- | - | ----- | - | ---- | - | ------ | - |  | - | ------ | - | 
| |                                                                                                            |   | Three Months Ended                            |   | Six Months Ended
| |                                                                                                            |   | June 30,                                      |   | June 30,        
| |                                                                                                            |   |                                               |   |                 
| |                                                                                                            |   | 2002                                          |   | 2003             |   | 2002  |   | 2003
| |                                                                                                            |   |                                               |   |                  |   |       |   |     
| |                                                                                                            |   | (Dollars in thousands, except per share data)
|
| | Net income (loss), as reported                                                                             | $ | (1,628                                        | ) |                  | $ | 1,842 |   |      | $ | (3,427 | ) |  | $ | (4,246 | )
| | Add: Stock-based compensation, as reported                                                                 |   |                                              |   |                  |   |      |   |      |   |       |   |  |   |       |  
| | Deduct: Total stock-based compensation determined
under fair value based method for all awards, net of tax |   | (612                                          | ) |                  |   | (196  | ) |      |   | (882   | ) |  |   | (708   | )
| |                                                                                                            |   |                                               |   |                  |   |       |   |      |   |        |   | 
| | Pro forma net income (loss)                                                                                | $ | (2,240                                        | ) |                  | $ | 1,646 |   |      | $ | (4,309 | ) |  | $ | (4,954 | )
| |                                                                                                            |   |                                               |   |                  |   |       |   |      |   |        |  
| | Income (loss) per share:                                                                                   |   |                                               |   |                  |   |       |   |      |   |        |   |  |   |        |  
| | Basic and diluted income (loss) per share - as reported                                                    | $ | (0.07                                         | ) |                  | $ | 0.08  |   |      | $ | (0.15  | ) |  | $ | (0.18  | )
| | Basic and diluted income (loss) per share - pro forma                                                      | $ | (0.10                                         | ) |                  | $ | 0.07  |   |      | $ | (0.18  | ) |  | $ | (0.21  | )

NOTE 3. RECLASSIFICATIONS

We have reclassified our
statements of operations data for all periods presented to reflect increases to
revenues and expenses as appropriate for barter transactions, eliminating the
practice of reporting these transactions net in our statements of operations. In
addition, we have reclassified our statements of operations data for all periods
presented to reflect our sale on September 30, 2002 of the assets of radio station
WYGYFM, Cincinnati, Ohio, which has been accounted for as a discontinued
operation.

7



---



NOTE 4. ACQUISITIONS AND OTHER SIGNIFICANT TRANSACTIONS

The company owns 11.1% of an
entity holding a construction permit authorization for a new radio station in
Sacramento, California. In March 2003, Salem entered into an agreement to acquire
for $1.0 million the remaining 88.9% interest in such entity. This new station
is under construction and is not yet operating.

On April 28, 2003, the
company entered into an agreement to acquire the assets of radio station WAMG-AM
in Boston, Massachusetts, for $8.6 million. We anticipate this transaction to close
in the second half of 2003.

On May 1, 2003, the company
entered into an agreement to acquire the assets of radio station KKCS-AM in Colorado
Springs, Colorado, for $1.5 million. We anticipate this transaction to close in the
second half of 2003.

NOTE 5. RECENT ACCOUNTING PRONOUNCEMENTS

Statement of Financial
Accounting Standards No. 145

In April 2002, the 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.

8



---



NOTE 6. 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 Cost of denied tower site and license upgrade.

NOTE 7. 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. The proceeds of the issuance of the 73⁄4% Notes
were recorded on Salems balance sheet as Restricted cash at December 31,
2002.

NOTE 8. AMORTIZABLE INTANGIBLE ASSETS

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

|                                          |  |                         |                        |        |              |   |             |         |   |   |       |      
|----------------------------------------- |  | ----------------------- | ---------------------- | ------ | ------------ | - | ----------- | ------- | - | - | ----- | -----
|                                          |  | As of December 31, 2002
|                                          |  |                        
|                                          |  |                         |                        |        |              |   | Accumulated
|                                          |  |                         | Cost                   |        | Amortization |   | Net        
|                                          |  |                         |                        |        |              |   |            
|                                          |  |                         | (Dollars in thousands)
|                                          |  |                         |                       
|Noncompetition agreements                 |  | $                       | 12,618                 |        |              | $ | (12,223     | )       |   | $ | 395  
|Customer
      lists and contracts        |  |                         | 7,278                  |        |              |   | (4,405      | )       |   |   | 2,873
|Favorable
      and assigned leases       |  |                         | 1,800                  |        |              |   | (1,201      | )       |   |   | 599  
|Other amortizable
      intangible assets |  |                         | 3,258                  |        |              |   | (1,928      | )       |   |   | 1,330
|                                          |  |                         |                        |        |              |   |             |         |   |   |       |      
|                                          |  |                         | $                      | 24,954 |              |   | $           | (19,757 | ) |   | $     | 5,197
|                                          |  |                         |                        |        |              |   |             |         |   |   |       |      

|                                          |  |                     |                        |        |              |   |             |        |   |   |       |      
|----------------------------------------- |  | ------------------- | ---------------------- | ------ | ------------ | - | ----------- | ------ | - | - | ----- | -----
|                                          |  | As of June 30, 2003
|                                          |  |                    
|                                          |  |                     |                        |        |              |   | Accumulated
|                                          |  |                     | Cost                   |        | Amortization |   | Net        
|                                          |  |                     |                        |        |              |   |            
|                                          |  |                     | (Dollars in thousands)
|                                          |  |                     |                       
|Customer
      lists and contracts        |  | $                   | 7,278                  |        |              | $ | (4,840      | )      |   | $ | 2,438
|Favorable
      and assigned leases       |  |                     | 1,800                  |        |              |   | (1,232      | )      |   |   | 568  
|Other
      amortizable intangible assets |  |                     | 4,263                  |        |              |   | (2,238      | )      |   |   | 2,025
|                                          |  |                     |                        |        |              |   |             |        |   |   |       |      
|                                          |  |                     | $                      | 13,341 |              |   | $           | (8,310 | ) |   | $     | 5,031
|                                          |  |                     |                        |        |              |   |             |        |   |   |       |      

9



---



Based on the amortizable
intangible assets as of June 30, 2003, we estimate amortization expense for
the next five years to be as follows:

|                         |  |                        |   |      
|------------------------ |  | ---------------------- | - | -----
|Year Ending December 31, |  | Amortization Expense  
|                         |  |                       
|                         |  | (Dollars in thousands)
|                         |  |                       
|2003                     |  |                        | $ | 1,587
|2004                     |  |                        |   | 1,527
|2005                     |  |                        |   | 1,276
|2006                     |  |                        |   | 728  
|2007                     |  |                        |   | 437  

NOTE 9. 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 551,335 and
636,715 shares of Class A common stock were outstanding at June 30, 2002 and 2003, respectively.
These options were excluded from the respective computations of diluted net income or
loss per share because their effect would be anti-dilutive.

10



---



NOTE 10. 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 one interest rate swap
agreement outstanding as of June 30, 2003, which is 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. In addition, on
July 27, 2003, we entered into an additional interest rate swap
agreement. The counter party 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 party, we do not anticipate
nonperformance by the counter party nor would we expect any such loss to be material.

At June 30, 2003, an
interest rate swap agreement with a notional principal amount of $66.0 million
was outstanding. This agreement relates to our $150.0 million 9% senior
subordinated notes due 2011 (9% Notes). This agreement expires in 2011 when
the 9% Notes mature, and
effectively swaps the 9% 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 $7.3 million
at June 30, 2003. 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.
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, 2003 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 4.47% for the six months ended June 30, 2003 and will be 4.21%
for the six month period ended December 31, 2003.

On July 27, 2003, we entered
into 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% fixed interest rate on $24.0 million of the 9% Notes
for a floating rate equal to the LIBOR rate plus 4.86%. Changes in the fair value
of the swap and the changes in the fair value
of debt being hedged will be recorded as part of interest expense. The fair value of
the swap agreement will be included with long-term assets, and the fair value of the
debt hedged by the swap will be recorded in long-term debt consistent with the
maturity date of the swap.
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 will be no income statement effect relative to
the change in the fair value of the swap agreement. The interest rate under the swap
through December 31, 2003 will be 5.98%.

NOTE 11. 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.

11



---



NOTE 12. 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 CCM
Communications, Inc. (CCM, our publishing business),
which do not meet the reportable segment quantitative threshholds 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,        
|                                                                                                                                            |                    |  |  |   |                    |  |                  |   |        |   |                        |   |       
|                                                                                                                                            |                    |  |  |   |                    |  | 2002             |   | 2003   |   | 2002                   |   | 2003  
|                                                                                                                                            |                    |  |  |   |                    |  |                  |   |        |   |                        |   |        |   |        |   |       
|                                                                                                                                            |                    |  |  |   |                    |  |                  |   |        |   | (Dollars in thousands)
|                                                                                                                                           
|Net revenue                                                                                                                                
|                                                                                                                                            | Radio broadcasting |  |  |   |                    |  |                  |   |        | $ | 40,066                 |   |        | $ | 43,428 |   |        | $ | 75,786 |   |  | $ | 82,134 |  
|                                                                                                                                            | Other media        |  |  |   |                    |  |                  |   |        |   | 1,856                  |   |        |   | 2,234  |   |        |   | 3,551  |   |  |   | 4,155  |  
|                                                                                                                                            |                    |  |  |   |                    |  |                  |   |        |   |                        |   |        |   |        |   |        |   |        |  
|Consolidated net revenue                                                                                                                    |                    |  |  |   |                    |  |                  |   |        | $ | 41,922                 |   |        | $ | 45,662 |   |        | $ | 79,337 |   |  | $ | 86,289 |  
|                                                                                                                                            |                    |  |  |   |                    |  |                  |   |        |   |                        |   |        |   |        |   |        |   |        |  
|                                                                                                                                           
|Operating
      expenses (excluding depreciation, amortization, legal settlement and costs of denied tower site and license upgrade)       
|                                                                                                                                            | Radio broadcasting |  |  |   |                    |  |                  |   |        | $ | 26,888                 |   |        | $ | 27,505 |   |        | $ | 51,573 |   |  | $ | 53,843 |  
|                                                                                                                                            | Other media        |  |  |   |                    |  |                  |   |        |   | 1,702                  |   |        |   | 2,116  |   |        |   | 3,735  |   |  |   | 3,976  |  
|                                                                                                                                            | Corporate          |  |  |   |                    |  |                  |   |        |   | 3,731                  |   |        |   | 4,027  |   |        |   | 7,418  |   |  |   | 8,071  |  
|                                                                                                                                            |                    |  |  |   |                    |  |                  |   |        |   |                        |   |        |   |        |   |        |   |        |  
|Consolidated operating expenses (excluding depreciation, amortization, legal settlement
and costs of denied tower site and license upgrade) |                    |  |  | $ | 32,321             |  |                  | $ | 33,648 |   |                        | $ | 62,726 |   |        | $ | 65,890 |  
|                                                                                                                                            |                    |  |  |   |                    |  |                  |   |        |   |                        |   |        |   |        |   |        |   |        |  
|                                                                                                                                           
|Operating
      income before depreciation, amortization, legal settlement and costs of denied tower site and license upgrade              
|                                                                                                                                            | Radio broadcasting |  |  |   |                    |  |                  |   |        | $ | 13,178                 |   |        | $ | 15,923 |   |        | $ | 24,213 |   |  | $ | 28,291 |  
|                                                                                                                                            | Other media        |  |  |   |                    |  |                  |   |        |   | 154                    |   |        |   | 118    |   |        |   | (184   | ) |  |   | 179    |  
|                                                                                                                                            | Corporate          |  |  |   |                    |  |                  |   |        |   | (3,731                 | ) |        |   | (4,027 | ) |        |   | (7,418 | ) |  |   | (8,071 | )
|                                                                                                                                            |                    |  |  |   |                    |  |                  |   |        |   |                        |   |        |   |        |   |        |   |        |  
|Consolidated
operating income before depreciation, amortization, legal settlement and costs of denied tower site and license upgrade        |                    |  |  | $ | 9,601              |  |                  | $ | 12,014 |   |                        | $ | 16,611 |   |        | $ | 20,399 |  
|                                                                                                                                            |                    |  |  |   |                    |  |                  |   |        |   |                        |   |        |   |        |   |        |   |        |  
|                                                                                                                                           
|Depreciation expense                                                                                                                       
|                                                                                                                                            | Radio broadcasting |  |  |   |                    |  |                  |   |        | $ | 2,120                  |   |        | $ | 2,368  |   |        | $ | 4,237  |   |  | $ | 4,695  |  
|                                                                                                                                            | Other media        |  |  |   |                    |  |                  |   |        |   | 102                    |   |        |   | 127    |   |        |   | 214    |   |  |   | 258   
|                                                                                                                                            | Corporate          |  |  |   |                    |  |                  |   |        |   | 146                    |   |        |   | 170    |   |        |   | 231    |   |  |   | 332    |  
|                                                                                                                                            |                    |  |  |   |                    |  |                  |   |        |   |                        |   |        |   |        |   |        |   |        |  
|Consolidated depreciation expense                                                                                                           |                    |  |  |   |                    |  |                  |   |        | $ | 2,368                  |   |        | $ | 2,665  |   |        | $ | 4,682  |   |  | $ | 5,285  |  
|                                                                                                                                            |                    |  |  |   |                    |  |                  |   |        |   |                        |   |        |   |        |   |        |   |        |  
|                                                                                                                                           
|Amortization expense                                                                                                                       
|                                                                                                                                            | Radio broadcasting |  |  |   |                    |  |                  |   |        | $ | 473                    |   |        | $ | 241    |   |        | $ | 947    |   |  | $ | 483   
|                                                                                                                                            | Other media        |  |  |   |                    |  |                  |   |        |   | 64                     |   |        |   | 162    |   |        |   | 127    |   |  |   | 323    |  
|                                                                                                                                            | Corporate          |  |  |   |                    |  |                  |   |        |   |                       |   |        |   | 2      |   |        |   | 1      |   |  |   | 4     
|                                                                                                                                            |                    |  |  |   |                    |  |                  |   |        |   |                        |   |        |   |        |   |        |   |        |  
|Consolidated amortization expense                                                                                                           |                    |  |  |   |                    |  |                  |   |        | $ | 537                    |   |        | $ | 405    |   |        | $ | 1,075  |   |  | $ | 810    |  
|                                                                                                                                            |                    |  |  |   |                    |  |                  |   |        |   |                        |   |        |   |        |   |        |   |        |  
|                                                                                                                                           
|Operating income before costs of
denied tower site and license upgrade                                                                     
|                                                                                                                                            | Radio broadcasting |  |  |   |                    |  |                  |   |        | $ | 10,585                 |   |        | $ | 13,314 |   |        | $ | 19,029 |   |  | $ | 23,113
|                                                                                                                                            | Other media        |  |  |   |                    |  |                  |   |        |   | (12                    | ) |        |   | (171   | ) |        |   | (525   | ) |  |   | (402   | )
|                                                                                                                                            | Corporate          |  |  |   |                    |  |                  |   |        |   | (3,877                 | ) |        |   | (4,199 | ) |        |   | (7,650 | ) |  |   | (8,407 | )
|                                                                                                                                            |                    |  |  |   |                    |  |                  |   |        |   |                        |   |        |   |        |   |        |   |        |  
|Consolidated operating
income before costs of denied tower site and license upgrade                                                         |                    |  |  |   |                    |  |                  |   |        | $ | 6,696                  |   |        | $ | 8,944  |   |        | $ | 10,854 |   |  | $ | 14,304 |  
|                                                                                                                                            |                    |  |  |   |                    |  |                  |   |        |   |                        |   |        |   |        |   |        |   |        |  

12



---



|                                                |                    |   |                        |  |          |   |        |  | 
|----------------------------------------------- | ------------------ | - | ---------------------- |  | -------- | - | ------ |  | 
|                                                |                    |   | December 31,           |  | June 30,
|                                                |                    |   | 2002                   |  | 2003    
|                                                |                    |   |                        |  |         
|                                                |                    |   | (Dollars in thousands)
|                                               
|Total
      property, plant and equipment, net 
|                                                | Radio broadcasting | $ | 94,594                 |  |          | $ | 91,741
|                                                | Other media        |   | 1,939                  |  |          |   | 1,756 
|                                                | Corporate          |   | 2,661                  |  |          |   | 2,801 
|                                                |                    |   |                        |  |          |  
|Consolidated property, plant and equipment, net |                    | $ | 99,194                 |  |          | $ | 96,298
|                                                |                    |   |                        |  |          |  
|                                               

|                                                                                                                                  |                                                                                                                         |  |  |  |  |                    |        |   |                  |   |        |      |  |   |         |   |  |   |         |   | 
|--------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- |  |  |  |  | ------------------ | ------ | - | ---------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------- | - | 
|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,        
|                                                                                                                                  |                                                                                                                         |  |  |  |  |                    |        |   |                  |  
|                                                                                                                                  |                                                                                                                         |  |  |  |  | 2002               |        |   | 2003             |   |        | 2002 |  |   | 2003   
|                                                                                                                                  |                                                                                                                         |  |  |  |  |                    |        |   |                  |   |        |      |  |   |        
|                                                                                                                                  | Operating income
before depreciation, amortization, legal settlement and costs of denied tower site and license upgrade |  |  |  |  | $                  | 9,601  |   |                  | $ | 12,014 |      |  | $ | 16,611  |   |  | $ | 20,399  |  
|                                                                                                                                  | Depreciation expense                                                                                                    |  |  |  |  |                    | (2,368 | ) |                  |   | (2,665 | )    |  |   | (4,682  | ) |  |   | (5,285  | )
|                                                                                                                                  | Amortization expense                                                                                                    |  |  |  |  |                    | (537   | ) |                  |   | (405   | )    |  |   | (1,075  | ) |  |   | (810    | )
|                                                                                                                                  | Legal settlement                                                                                                        |  |  |  |  |                    | (2,300 | ) |                  |   |       |      |  |   | (2,300  | ) |  |   |        |  
|                                                                                                                                  | Costs of
denied tower site and license upgrade                                                                          |  |  |  |  |                    |       |   |                  |   |       |      |  |   |        |   |  |   | (2,202  | )
|                                                                                                                                  | Interest income                                                                                                         |  |  |  |  |                    | 22     |   |                  |   | 17     |      |  |   | 62      |   |  |   | 171     |  
|                                                                                                                                  | Loss on sale of assets                                                                                                  |  |  |  |  |                    | (225   | ) |                  |   |       |      |  |   | (451    | ) |  |   |        |  
|                                                                                                                                  | Interest expense                                                                                                        |  |  |  |  |                    | (6,719 | ) |                  |   | (5,600 | )    |  |   | (13,425 | ) |  |   | (12,236 | )
|                                                                                                                                  | Loss on
early redemption of longterm debt                                                                              |  |  |  |  |                    |       |   |                  |   |       |      |  |   |        |   |  |   | (6,440  | )
|                                                                                                                                  | Other expense, net                                                                                                      |  |  |  |  |                    | (112   | ) |                  |   | (92    | )    |  |   | (276    | ) |  |   | (161    | )
|                                                                                                                                  |                                                                                                                         |  |  |  |  |                    |        |   |                  |   |        |      |  |  
|Income before income taxes and discontinued operations                                                                            |                                                                                                                         |  |  |  |  | $                  | (2,638 | ) |                  | $ | 3,269  |      |  | $ | (5,536  | ) |  | $ | (6,564  | )
|                                                                                                                                  |                                                                                                                         |  |  |  |  |                    |        |   |                  |   |        |      |  |  

13



---



NOTE 13. 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 (HoldCo) as the issuer
of the $150.0 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 HoldCo on an unconsolidated basis is not
presented because HoldCo 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
(AcqCo). The financial position and results of operations for
OnePlace are presented with CCM in Other Media.

14



---



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

|                                             |                                           |   |                     |       |              |   |         |       |        |   |             |       |              |   |         |        |  |   |          |        |       |   |         |        | 
|-------------------------------------------- | ----------------------------------------- | - | ------------------- | ----- | ------------ | - | ------- | ----- | ------ | - | ----------- | ----- | ------------ | - | ------- | ------ |  | - | -------- | ------ | ----- | - | ------- | ------ | 
|                                             |                                           |   | As of June 30, 2003
|                                             |                                           |   |                    
|                                             |                                           |   |                     |       | Issuer and  
|                                             |                                           |   |                     |       | Guarantor   
|                                             |                                           |   | Guarantors          |       | Subsidiaries
|                                             |                                           |   |                     |       |             
|                                             |                                           |   |                     |       |              |   |         |       |        |   | Other       |       |              |   |         |        |  |   |          |        | Salem |  
|                                             |                                           |   | Parent              |       | AcqCo        |   | Media   |       | HoldCo |   | Adjustments |       | Consolidated |  
|                                             |                                           |   |                     |       |              |   |         |       |        |   |             |       |              |   |         |        |  |   |          |        |       |   |         |       
|Current assets:                              |                                           |   |                     |       |              |   |         |       |        |   |            
|                                             | Cash and cash equivalents                 |   | $                   | 47    |              |   | $       | 454   |        |   | $           | 120   |              |   | $       | 3,372  |  |   | $        |       |       |   | $       | 3,993 
|                                             | Accounts receivable                       |   |                     |      |              |   |         | 1,996 |        |   |             | 1,548 |              |   |         | 27,396 |  |   |          | (69    | )     |   |         | 30,871 | 
|                                             | Other receivables                         |   |                     |      |              |   |         | 37    |        |   |             | 144   |              |   |         | 2,788  |  |   |          |       |       |   |         | 2,969 
|                                             | Prepaid expenses                          |   |                     |      |              |   |         | (9    | )      |   |             | 77    |              |   |         | 1,298  |  |   |          | 23     |       |   |         | 1,389  | 
|                                             | Due from stockholders                     |   |                     |      |              |   |         |      |        |   |             |      |              |   |         | 167    |  |   |          |       |       |   |         | 167   
|                                             | Deferred income taxes                     |   |                     | 1,845 |              |   |         | 125   |        |   |             | 81    |              |   |         | 3,792  |  |   |          | (1,800 | )     |   |         | 4,043  | 
|                                             |                                           |   |                     |       |              |   |         |       |        |   |             |       |              |   |         |        |  |   |          |        |       |   |         |       
|Total current assets                         |                                           |   | 1,892               |       |              |   | 2,603   |       |        |   | 1,970       |       |              |   | 38,813  |        |  |   | (1,846   | )      |       |   | 43,432 
|Property, plant, equipment and software, net |                                           |   |                    |       |              |   | 4,589   |       |        |   | 1,319       |       |              |   | 90,390  |        |  |   |         |        |       |   | 96,298  |       
|Broadcast licenses                           |                                           |   |                    |       |              |   | 93,602  |       |        |   |            |       |              |   | 270,006 |        |  |   |         |        |       |   | 363,608
|Goodwill                                     |                                           |   |                    |       |              |   | 8       |       |        |   | 5,010       |       |              |   | 6,111   |        |  |   |         |        |       |   | 11,129  |       
|Amortizable intangible assets, net           |                                           |   |                    |       |              |   |        |       |        |   | 364         |       |              |   | 4,667   |        |  |   |         |        |       |   | 5,031  
|Bond issue costs                             |                                           |   |                    |       |              |   |        |       |        |   |            |       |              |   | 6,009   |        |  |   |         |        |       |   | 6,009   |       
|Fair value of interest rate swap             |                                           |   |                    |       |              |   |        |       |        |   |            |       |              |   | 7,316   |        |  |   |         |        |       |   | 7,316   |       
|Intercompany receivables                     |                                           |   | 254,820             |       |              |   |        |       |        |   | (2,046      | )     |              |   | 107,578 |        |  |   | (360,352 | )      |       |   |        |       
|Other assets                                 |                                           |   |                    |       |              |   |        |       |        |   | 3,469       |       |              |   | 5,920   |        |  |   | (2,962   | )      |       |   | 6,427   |       
|                                             |                                           |   |                     |       |              |   |         |       |        |   |             |       |              |   |         |        |  |   |          |        |       |   |         |       
|Total assets                                 |                                           | $ | 256,712             |       |              | $ | 100,802 |       |        | $ | 10,086      |       |              | $ | 536,810 |        |  | $ | (365,160 | )      |       | $ | 539,250 |       
|                                             |                                           |   |                     |       |              |   |         |       |        |   |             |       |              |   |         |        |  |   |          |        |       |   |        
|Current liabilities:                         |                                           |   |                     |       |             
|                                             | Accounts payable                          |   | $                   |      |              |   | $       | 4     |        |   | $           | (7    | )            |   | $       | 226    |  |   | $        | 22     |       |   | $       | 245    | 
|                                             | Accrued expenses                          |   |                     | 2     |              |   |         | 325   |        |   |             | 353   |              |   |         | 3,859  |  |   |          | (69    | )     |   |         | 4,470  | 
|                                             | Accrued compensation and related expenses |   |                     | 2     |              |   |         | 217   |        |   |             | 238   |              |   |         | 4,598  |  |   |          |       |       |   |         | 5,055  | 
|                                             | Accrued interest                          |   |                     |      |              |   |         |      |        |   |             |      |              |   |         | 7,376  |  |   |          |       |       |   |         | 7,376  | 
|                                             | Deferred revenue                          |   |                     |      |              |   |         |      |        |   |             | 1,234 |              |   |         |       |  |   |          |       |       |   |         | 1,234  | 
|                                             | Income taxes payable                      |   |                     |      |              |   |         |      |        |   |             |      |              |   |         | 2,466  |  |   |          | (2,434 | )     |   |         | 32     | 
|                                             | Current maturities of long-term debt      |   |                     |      |              |   |         |      |        |   |             |      |              |   |         | 29     |  |   |          |       |       |   |         | 29     | 
|                                             |                                           |   |                     |       |              |   |         |       |        |   |             |       |              |   |         |        |  |   |          |        |       |   |         |       
|Total current liabilities                    |                                           |   | 4                   |       |              |   | 546     |       |        |   | 1,818       |       |              |   | 18,553  |        |  |   | (2,481   | )      |       |   | 18,440  |       
|Intercompany payables                        |                                           |   | 124,170             |       |              |   | (962    | )     |        |   | 12,141      |       |              |   |        |        |  |   | (135,349 | )      |       |   |        |       
|Long-term debt                               |                                           |   |                    |       |              |   |        |       |        |   |            |       |              |   | 323,419 |        |  |   |         |        |       |   | 323,419 |       
|Deferred income taxes                        |                                           |   |                    |       |              |   | 20,378  |       |        |   |            |       |              |   | 25,234  |        |  |   | (20,045  | )      |       |   | 25,567  |       
|Deferred revenue                             |                                           |   |                    |       |              |   |        |       |        |   |            |       |              |   | 3,469   |        |  |   |         |        |       |   | 3,469   |       
|Other liabilities                            |                                           |   |                    |       |              |   |        |       |        |   | (1          | )     |              |   | 624     |        |  |   |         |        |       |   | 623     |       
|Stockholders equity                         |                                           |   | 132,538             |       |              |   | 80,840  |       |        |   | (3,872      | )     |              |   | 165,511 |        |  |   | (207,285 | )      |       |   | 167,732 |       
|                                             |                                           |   |                     |       |              |   |         |       |        |   |             |       |              |   |         |        |  |   |          |        |       |   |         |       
|Total liabilities and stockholders equity   |                                           | $ | 256,712             |       |              | $ | 100,802 |       |        | $ | 10,086      |       |              | $ | 536,810 |        |  | $ | (365,160 | )      |       | $ | 539,250 |       
|                                             |                                           |   |                     |       |              |   |         |       |        |   |             |       |              |   |         |        |  |   |          |        |       |   |         |       

15



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

|                                     |                                                |   |                                |        |              |   |       |       |        |   |             |       |              |   |        |         |   |   |      |        |       |   |        |         |  
|------------------------------------ | ---------------------------------------------- | - | ------------------------------ | ------ | ------------ | - | ----- | ----- | ------ | - | ----------- | ----- | ------------ | - | ------ | ------- | - | - | ---- | ------ | ----- | - | ------ | ------- | -
|                                     |                                                |   | Six Months Ended June 30, 2003
|                                     |                                                |   |                               
|                                     |                                                |   |                                |        | Issuer and  
|                                     |                                                |   |                                |        | Guarantor   
|                                     |                                                |   | Guarantors                     |        | Subsidiaries
|                                     |                                                |   |                                |        |             
|                                     |                                                |   |                                |        |              |   |       |       |        |   | Other       |       |              |   |        |         |   |   |      |        | Salem |  
|                                     |                                                |   | Parent                         |        | AcqCo        |   | Media |       | HoldCo |   | Adjustments |       | Consolidated |  
|                                     |                                                |   |                                |        |              |   |       |       |        |   |             |       |             
|Gross broadcasting revenue           |                                                | $ |                               |        |              | $ | 5,958 |       |        | $ |            |       |              | $ | 83,950 |         |   | $ | (473 | )      |       | $ | 89,435 |        
|Less agency commissions              |                                                |   |                               |        |              |   | (416  | )     |        |   |            |       |              |   | (6,885 | )       |   |   |     |        |       |   | (7,301 | )      
|                                     |                                                |   |                                |        |              |   |       |       |        |   |             |       |              |   |        |         |   |   |      |        |       |   |        |        
|Net broadcasting revenue             |                                                |   |                               |        |              |   | 5,542 |       |        |   |            |       |              |   | 77,065 |         |   |   | (473 | )      |       |   | 82,134 |        
|Other media revenue                  |                                                |   |                               |        |              |   |      |       |        |   | 4,275       |       |              |   |       |         |   |   | (120 | )      |       |   | 4,155  |        
|                                     |                                                |   |                                |        |              |   |       |       |        |   |             |       |              |   |        |         |   |   |      |        |       |   |        |        
|Total revenue                        |                                                |   |                               |        |              |   | 5,542 |       |        |   | 4,275       |       |              |   | 77,065 |         |   |   | (593 | )      |       |   | 86,289 |        
|Operating expenses:                 
|                                     | Broadcasting operating expenses                |   |                                |       |              |   |       | 4,065 |        |   |             |      |              |   |        | 50,251  |   |   |      | (473   | )     |   |        | 53,843  |  
|                                     | Costs of denied tower site and license upgrade |   |                                |       |              |   |       |      |        |   |             |      |              |   |        | 2,202   |   |   |      |       |       |   |        | 2,202   |  
|                                     | Other media operating expenses                 |   |                                |       |              |   |       |      |        |   |             | 4,347 |              |   |        | (251    | ) |   |      | (120   | )     |   |        | 3,976   |  
|                                     | Corporate expenses                             |   |                                |       |              |   |       |      |        |   |             |      |              |   |        | 8,071   |   |   |      |       |       |   |        | 8,071   |  
|                                     | Depreciation and amortization                  |   |                                |       |              |   |       | 219   |        |   |             | 344   |              |   |        | 5,532   |   |   |      |       |       |   |        | 6,095   |  
|                                     |                                                |   |                                |        |              |   |       |       |        |   |             |       |              |   |        |         |   |   |      |        |       |   |        |        
|Total operating expenses             |                                                |   |                               |        |              |   | 4,284 |       |        |   | 4,691       |       |              |   | 65,805 |         |   |   | (593 | )      |       |   | 74,187 |        
|                                     |                                                |   |                                |        |              |   |       |       |        |   |             |       |              |   |        |         |   |   |      |        |       |   |        |        
|Net operating income (loss)          |                                                |   |                               |        |              |   | 1,258 |       |        |   | (416        | )     |              |   | 11,260 |         |   |   |     |        |       |   | 12,102 |        
|Other income (expense):              |                                                |   |                                |       
|                                     | Interest income                                |   |                                |       |              |   |       | (2    | )      |   |             | 18    |              |   |        | 5,764   |   |   |      | (5,609 | )     |   |        | 171     |  
|                                     | Interest expense                               |   |                                | (5,248 | )            |   |       |      |        |   |             | (361  | )            |   |        | (12,236 | ) |   |      | 5,609  |       |   |        | (12,236 | )
|                                     | Loss on early redemption of long-term debt     |   |                                |       |              |   |       |      |        |   |             |      |              |   |        | (6,440  | ) |   |      |       |       |   |        | (6,440  | )
|                                     | Other expense, net                             |   |                                |       |              |   |       | (1    | )      |   |             |      |              |   |        | (160    | ) |   |      |       |       |   |        | (161    | )
|                                     |                                                |   |                                |        |              |   |       |       |        |   |             |       |              |   |        |         |   |   |      |        |       |   |        |        
|Income (loss) before income taxes    |                                                |   | (5,248                         | )      |              |   | 1,255 |       |        |   | (759        | )     |              |   | (1,812 | )       |   |   |     |        |       |   | (6,564 | )       |  
|Provision (benefit) for income taxes |                                                |   | (1,845                         | )      |              |   | 481   |       |        |   | (96         | )     |              |   | (634   | )       |   |   | (224 | )      |       |   | (2,318 | )      
|                                     |                                                |   |                                |        |              |   |       |       |        |   |             |       |              |   |        |         |   |   |      |        |       |   |        |        
|Net income (loss)                    |                                                | $ | (3,403                         | )      |              | $ | 774   |       |        | $ | (663        | )     |              | $ | (1,178 | )       |   | $ | 224  |        |       | $ | (4,246 | )       |  
|                                     |                                                |   |                                |        |              |   |       |       |        |   |             |       |              |   |        |         |   |   |      |        |       |   |        |        

16



---



NOTE 14. SUBSEQUENT EVENTS

On August 1, 2003, the company
acquired the assets of radio stations WBGB-FM, WJGR-AM, WZNZ-AM, and WZAZ-AM,
Jacksonville, Florida, for $8.6 million.

On July 27, 2003, we entered
into an interest rate swap agreement with a notional principal amount of $24.0 million
relating to our 9% Notes. This agreement expires in 2011 when the 9% Notes mature, and
effectively swaps the 9% fixed interest rate on $24.0 million of the 9% Notes
for a floating rate equal to the LIBOR rate plus 4.86%, which will be 5.98% through
December 31, 2003.

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. After completing our
pending transactions, we will own and operate 92 radio stations, including 58
stations in 22 of the top 25 markets. We are the sixth largest operator measured
by number of stations overall and the third largest operator measured by number
of stations in the top 25 markets. Management believes that we are the fifteenth
largest radio broadcaster measured by net broadcasting revenue for the year ended
December 31, 2002. We also own Salem Radio Network®, which we believe to be
a leading developer, producer and syndicator of religious and family issues
oriented talk, news and music programming (but not of general broadcast
programming) with approximately 1,600 affiliated radio stations. In addition, we
own complementary Internet and publishing businesses.

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 Securities and
Exchange Commission.

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 conservative
news/talk and contemporary Christian music formats. Salem Radio Network®
supports our strategy by enabling us to offer a variety of program content on our
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
program 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 Arbitron, which develops 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 have a general pre-determined level of time that
they make available for block programs and/or advertising, which may vary at
different times of the day.

17



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In recent years, we have
placed greater emphasis on the development of local advertising in all
of our markets. We encourage our general managers and sales managers to increase
advertising revenue. We can create additional advertising revenue in a variety
of ways, such as removing block programming that generates marginal audience
response, adjusting the start time of programs to add advertising in more
desirable time slots and increasing advertising rates.

As is typical in the radio
broadcasting industry, our second and fourth quarter advertising revenue
generally exceeds our first and third quarter advertising revenue. 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 or advisable 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 2002, we sold 95% 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
employee salaries and commissions, and facility expenses, for example, rent and
utilities. Beginning in 2000, in connection with the launch of our contemporary
Christian music format in several markets, we incurred increased amounts for
promotional expenses and music license fees. In addition to these expenses, our
networks incur programming costs and lease expenses for satellite communication
facilities. We also incur and expect to 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. CCM, 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.

18



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RESULTS OF OPERATIONS

We have reclassified our
statements of operations data for all periods presented to reflect our sale on
September 30, 2002 of the assets of radio station WYGY-FM, Cincinnati, Ohio,
which has been accounted for as a discontinued operation. In addition, we have
reclassified barter transactions to reflect increases to revenues and expenses as
appropriate, eliminating the practice of reporting the net contribution of these
transactions in our statements of operations.

Quarter ended June 30, 2003 compared to quarter ended
June 30, 2002

NET BROADCASTING
REVENUE.      Net broadcasting revenue
increased $3.3 million or 8.4% to $43.4 million for the quarter ended June 30, 2003
from $40.1 million for the same quarter of the prior year. The growth
is attributable to an increase in net revenue from our music stations acquired
since the middle of 2000, an increase in program rates and the acquisitions of
radio stations during 2002, partially offset by a decrease in network revenue due
to the loss of affiliates as a result of increased network competition.
On a same station basis, net revenue
improved $3.1 million or 7.8% to $43.2 million for the quarter ended June 30, 2003
from $40.1 million for the same quarter of the prior year. The growth
is attributable to an increase in net revenue from our music stations acquired
since the middle of 2000 and an increase in program rates, partially offset by a
decrease in network revenue due
to the loss of affiliates. Revenue from advertising as a
percentage of our gross broadcasting revenue increased to 52.4% for the quarter
ended June 30, 2003 from 50.3% for the same quarter of the prior year.
Revenue from block program time as a percentage of our gross broadcasting
revenue decreased to 34.7% for the quarter ended June 30, 2003 from 35.0%
for the same quarter of the prior year. This change in our revenue mix is
primarily due to the launch 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
$0.3 million or 20.4% to $2.2 million for the quarter ended June 30, 2003 from
$1.9 million for the same quarter of the prior year.
The increase is attributable primarily to additional revenues generated by
Crosswalk.com, which was acquired in October 2002, partially offset by a decline
in revenues at Salem Publishing.

BROADCASTING OPERATING
EXPENSES.       Broadcasting operating
expenses increased $0.6 million or 2.3% to $27.5 million for the quarter ended
June 30, 2003 from $26.9 million for the same quarter of the prior year.
On a same station basis, broadcasting operating expenses
increased $0.5 million or 1.7% to $27.4 million for the quarter ended June 30, 2003
from $26.9 million for the same quarter of the prior year. The increase
is primarily due to incremental selling and production expenses incurred to
produce the increased revenue in the period partially offset by the impact of
cost containment initiatives initiated during the first quarter of 2003.

OTHER MEDIA OPERATING
EXPENSES.      Other media operating expenses
increased $0.4 million or 24.3% to $2.1 million for the quarter ended June 30, 2003
from $1.7 million for the same quarter in the prior year. The increase
is attributable primarily to an increase in selling and editorial costs associated
with the integration of Crosswalk.com, which was acquired in October 2002, offset by a
reduction in costs associated with our publishing business, reduced audio
streaming costs for our Internet business and reduced overhead costs.

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CORPORATE EXPENSES.      Corporate expenses increased $0.3
million or 7.9% to $4.0 million in the quarter ended June 30, 2003 from
$3.7 million in the same quarter of the prior year, primarily due to an increase
in overhead costs associated with the acquisitions of radio stations
and an Internet business during 2002.

LEGAL SETTLEMENT.      On December 6, 2000, Gospel Communications
International (GCI) made a demand for arbitration upon us, as disclosed
in our annual report on Form 10-K for the year ended December 31, 2001 and our
quarterly report on Form 10-Q for the quarter ended March 31, 2002. On
July 15, 2002, we reached a confidential settlement with GCI for $2.3 million. As a
result of this settlement, we recorded a one-time charge of approximately $2.3
million in the second quarter of 2002.

DEPRECIATION AND
AMORTIZATION.      Depreciation and
amortization expense increased $0.2 million or 5.7% to $3.1 million for the
quarter ended June 30, 2003 from $2.9 million for the same quarter of the
prior year. The increase is due principally to the depreciation and amortization
associated with the acquisitions of radio stations and an Internet business during 2002.

OTHER INCOME (EXPENSE).      Interest income of approximately $17,000
for the quarter ended June 30, 2003 is primarily from interest earned on excess cash.
Interest expense decreased $1.1 million or 16.7% to $5.6 million for the quarter
ended June 30, 2003 from $6.7 million for the same quarter of the prior year. The
decrease is primarily due to savings of $0.7 million in interest related to our
interest rate swap agreement entered into in April 2002 (see ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKDerivative
Instruments, below), and savings due to the refinancing of our 91⁄2%
Notes, offset by increased long-term debt related to our radio station
acquisitions in 2002. Loss on sale of assets of $0.2 million for the quarter
ended June 30, 2002 is primarily due to the disposition of certain property, plant
and equipment and intangible assets. Other expense, net was $0.1 million for the
quarters ended June 30, 2003 and 2002, and was related primarily to bank commitment
fees associated with our credit facility.

PROVISION (BENEFIT) FOR INCOME
TAXES.      Provision (benefit) for income taxes as a
percentage of income before income taxes (that is, the effective tax rate) was
37.8% for the quarter ended June 30, 2003 and (37.1%) for the same quarter of
the prior year. For the quarters ended June 30, 2003 and 2002 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.

INCOME FROM DISCONTINUED
OPERATIONS, NET OF TAX.      Income from
discontinued operations was approximately $31,000 net of income taxes for the quarter
ended June 30, 2002. Discontinued operations relate to the operations of
WYGY-FM, Cincinnati, Ohio, which we sold on September 30, 2002 for $45.0 million.

NET INCOME (LOSS).      We recognized net income of $1.8
million for the quarter ended June 30, 2003 as compared to a net loss of
$1.6 million for the same quarter of the prior year.

20



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Six months ended June 30, 2003 compared to six months ended
June 30, 2002

NET BROADCASTING
REVENUE.      Net broadcasting revenue
increased $6.3 million or 8.4% to $82.1 million for the six months ended June
30, 2003 from $75.8 million for the same period of the prior year. The growth
is attributable to an increase in net revenue from our music stations acquired
since the middle of 2000, an increase in program rates and the acquisitions of
radio stations during 2002, partially offset by a decrease in network revenue due
to the loss of affiliates. On a same station basis, net revenue
improved $5.9 million or 7.8% to $81.7 million for the six months ended June
30, 2003 from $75.8 million for the same period of the prior year. The growth
is attributable to an increase in net revenue from our music stations acquired
since the middle of 2000 and an increase in program rates, partially offset by a
decrease in network revenue due
to the loss of affiliates. Revenue from advertising as a
percentage of our gross broadcasting revenue increased to 50.9% for the six months ended June
30, 2003 from 49.1% for the same period of the prior year.
Revenue from block program time as a percentage of our gross broadcasting
revenue decreased to 36.3% for the six months ended June 30, 2003 from 36.7%
for the same period of the prior year. This change in our revenue mix is
primarily due to the launch 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
$0.6 million or 17.0% to $4.2 million for the six months ended June 30, 2003 from
$3.6 million for the same period of the prior year.
The increase is attributable primarily to additional revenues generated by
Crosswalk.com, which was acquired in October 2002, partially offset by a decline
in revenues at Salem Publishing.

BROADCASTING OPERATING
EXPENSES.       Broadcasting operating
expenses increased $2.2 million or 4.4% to $53.8 million for the six months ended June
30, 2003 from $51.6 million for the same period of the prior year.
On a same station basis, broadcasting operating expenses
increased $2.0 million or 3.9% to $53.6 million for the six months ended June
30, 2003 from $51.6 million for the same period of the prior year. The increase
is primarily due to incremental selling and production expenses incurred to
produce the increased revenue in the period, partially offset by the impact of cost
containment initiatives initiated during the first quarter of 2003.

COSTS OF DENIED TOWER SITE AND LICENSE
UPGRADE.      In April 2003, the San Diego County
Board of Supervisors denied the company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 FCC denied
the company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 the companys
Statement of Operations as Cost of denied tower site and license upgrade.

OTHER MEDIA OPERATING
EXPENSES.      Other media operating expenses
increased $0.3 million or 6.5% to $4.0 million for the six months ended June
30, 2003 from $3.7 million for the same period in the prior year. The increase
is attributable primarily to an increase in selling and editorial costs associated
with the integration of Crosswalk.com, which was acquired in October 2002, offset
by a reduction in costs associated with our publishing business, reduced audio
streaming costs for our Internet business and reduced overhead costs.

21



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CORPORATE EXPENSES.      Corporate expenses increased $0.7
million or 8.8% to $8.1 million in the six months ended June 30, 2003 from
$7.4 million in the same period of the prior year, primarily due to an increase
in overhead costs associated with the acquisitions of radio stations
and an Internet business during 2002.

LEGAL SETTLEMENT.      On December 6, 2000, Gospel Communications
International (GCI) made a demand for arbitration upon us, as disclosed
in our annual report on Form 10-K for the year ended December 31, 2001 and our
quarterly report on Form 10-Q for the quarter ended March 31, 2002. On
July 15, 2002, we reached a confidential settlement with GCI for $2.3 million. As a
result of this settlement, we recorded a one-time charge of approximately $2.3
million in the second quarter of 2002.

DEPRECIATION AND
AMORTIZATION.      Depreciation and
amortization expense increased $0.3 million or 5.9% to $6.1 million for the
six months ended June 30, 2003 from $5.8 million for the same period of the
prior year. The increase is due principally to the depreciation and amortization
associated with the acquisitions of radio stations and an Internet business during 2002.

OTHER INCOME (EXPENSE).      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 8.9% to $12.2 million for the six months ended June 30, 2003 from $13.4 million
for the same period of the prior year. The decrease is primarily due to savings
of $1.5 million in interest related to our interest rate swap agreement entered
into in April 2002 (see ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISKDerivative Instruments, below), and savings due to the
refinancing of our 91⁄2% Notes, offset by increased long-term debt related
to our radio station acquisitions in 2002. Additionally, as part of the
refinancing of our 91⁄2% Notes,
both the 91⁄2% Notes and the 73⁄4% Notes, issued on December 23, 2002,
were outstanding until
January 22, 2003, at which time the 91⁄2% Notes were redeemed. Loss on early
redemption of long-term debt of $6.4 million for
the six months ended June 30, 2003 is the result of our early redemption of our
91⁄2% Notes on January 22, 2003, whereby we paid a $4.8 million premium to
redeem the 91⁄2% Notes and wrote-off approximately $1.7 million of unamortized
bond issuance costs related to the 91⁄2% Notes (see ITEM 2. MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSLIQUIDITY
AND CAPITAL RESOURCES). Loss on sale of assets of $0.5 million for
the six months ended June 30, 2002 is primarily due to the disposition of certain
property, plant and equipment. Other expense, net
was $0.2 million and $0.3 million for the six months ended June 30, 2003 and 2002,
respectively, and was related primarily to bank commitment fees associated with
our credit facility.

BENEFIT FOR INCOME
TAXES.      Benefit for income taxes as a
percentage of income before income taxes (that is, the effective tax rate) was
38.2% for the six months ended June 30, 2003 and 37.9% for the same period of
the prior year. For the six month periods ended June 30, 2003 and 2002 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.

INCOME FROM DISCONTINUED
OPERATIONS, NET OF TAX.      Income from
discontinued operations was approximately $13,000 net of income taxes for the six months ended June
30, 2002. Discontinued operations relate to the operations of
WYGY-FM, Cincinnati, Ohio, which we sold on September 30, 2002 for $45.0 million.

NET INCOME (LOSS).      We recognized a net loss of $4.2
million for the six months ended June 30, 2003 as compared to a net loss of
$3.4 million for the same period of the prior year.

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 useful, 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 radio broadcasting industry to provide comparisons between broadcasting groups.
Additionally, our management uses station operating income as one of our 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.

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STATION OPERATING INCOME.

Quarter ended June 30, 2003
compared to quarter ended June 30, 2002.      
Station operating income increased $2.7 million or 20.8% to $15.9 million for the
quarter ended June 30, 2003 from $13.2 million for the same quarter of the prior
year. As a percentage of net broadcasting revenue, station operating income
increased to 36.7% for the quarter ended June 30, 2003 from 32.9% for the same
quarter of the prior year. The percentage increase is primarily attributable to
the effect of radio stations acquired during 2001 and 2002 that previously
operated with formats other than their current format and the effect of the
launch of our contemporary Christian music format in several markets. 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 $2.6 million or 20.2% to $15.8 million for the quarter ended
June 30, 2003 from $13.2 million for the same quarter of the prior year. As a
percentage of same station net broadcast revenue, same station operating income
increased to 36.7% for the quarter ended June 30, 2003 from 32.9% for the same
quarter of the prior year.

Six months ended June 30, 2003
compared to six months ended June 30, 2002.      
Station operating income increased $4.1 million or 16.8% to $28.3 million for the
six months ended June 30, 2003 from $24.2 million for the same period of the prior
year. As a percentage of net broadcasting revenue, station operating income
increased to 34.4% for the six months ended June 30, 2003 from 31.9% for the same
period of the prior year. The percentage increase is primarily attributable to
the effect of radio stations acquired during 2001 and 2002 that previously
operated with formats other than their current format and the effect of the launch
of our contemporary Christian music format in several markets. 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 and
improved $3.9 million or 16.3% to $28.1 million for the six months ended June 30,
2003 from $24.2 million for the same period of the prior year. As a percentage of
same station net broadcast revenue, same station operating income increased to
34.4% for the six months ended June 30, 2003 from 31.9% 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 months
and the six months ended June 30, 2002 and 2003, respectively:

|                         |                                                    |   |                             |        |   |                           |        |        |      |   |        |        |   |   |        |        |  
|------------------------ | -------------------------------------------------- | - | --------------------------- | ------ | - | ------------------------- | ------ | ------ | ---- | - | ------ | ------ | - | - | ------ | ------ | -
|                         |                                                    |   |                            
|                         |                                                    |   | Three Months Ended June 30, |        |   | Six Months Ended June 30, |       
|                         |                                                    |   |                             |        |   |                           |       
|                         |                                                    |   |                             |       
|                         |                                                    |   | 2002                        |        |   | 2003                      |        |        | 2002 |   |        | 2003   |  
|                         |                                                    |   |                             |        |   |                           |        |        |      |   |        |        |  
|                         |                                                    |   | (Dollars in thousands)     
|                         |                                                    |   |                            
|Station operating income |                                                    | $ | 13,178                      |        |   | $                         | 15,923 |        |      | $ | 24,213 |        |   | $ | 28,291 |       
|                         | Plus other media revenue                           |   |                             | 1,856  |   |                           |        | 2,234  |      |   |        | 3,551  |   |   |        | 4,155  |  
|                         | Less cost
of denied tower site and license upgrade |   |                             |       |   |                           |        |       |      |   |        |       |   |   |        | (2,202 | )
|                         | Less other media operating expenses                |   |                             | (1,702 | ) |                           |        | (2,116 | )    |   |        | (3,735 | ) |   |        | (3,976 | )
|                         | Less legal settlement                              |   |                             | (2,300 | ) |                           |        |       |      |   |        | (2,300 | ) |   |        |       |  
|                         | Less depreciation and amortization                 |   |                             | (2,905 | ) |                           |        | (3,070 | )    |   |        | (5,757 | ) |   |        | (6,095 | )
|                         | Less corporate expenses                            |   |                             | (3,731 | ) |                           |        | (4,027 | )    |   |        | (7,418 | ) |   |        | (8,071 | )
|                         |                                                    |   |                             |        |   |                           |        |        |      |   |        |        |   |   |       
|Operating income         |                                                    | $ | 4,396                       |        |   | $                         | 8,944  |        |      | $ | 8,554  |        |   | $ | 12,102 |       
|                         |                                                    |   |                             |        |   |                           |        |        |      |   |        |        |   |   |        |       

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CRITICAL ACCOUNTING POLICIES

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 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 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 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 businesses 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 for reasonableness. The reports form the basis to record the acquisition
of the radio station, network or other media business at the close of the
transaction. When we exchange assets, we consider whether the exchange is an
exchange of a business or otherwise requires the assets received to be recorded
at fair value with the recognition of a gain or loss on the transaction, or the
exchange is an exchange of similar productive assets that should be recorded on
a historical cost basis with no gain or loss recorded. In accordance with
purchase accounting methodology, the operating results of the acquired assets
and businesses are included in the consolidated operating results since the
dates of acquisition.

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 approval, we assess the probable future benefit of the asset
at the time that it is recorded and monitor it through the FCC approval process.
In the unlikely event the required approval is considered not probable, we
write-off the capitalized costs of the project.

Allowance for bad debt

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 performing other
subjective analyses. 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.

24



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Intangible assets

Under the FASBs
new 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, and will perform annual impairment tests in
accordance with the statements. We believe our FCC licenses have indefinite
lives under the new standard and accordingly amortization expense is not
recorded for our FCC licenses or our goodwill effective July 1, 2001
for assets acquired subsequent to June 30, 2001, and effective January 1, 2002
for all other assets. Other intangible assets will 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 December
31, 2002, 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 judgements by our
management. If conditions in the markets in which 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, we have recorded a valuation allowance of $1.4
million as of June 30, 2003 to offset a portion of the deferred tax assets
related to the state net operating loss carryforwards. Management regularly
reviews the companys 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 in 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 that no principal payments will be required
pursuant to the credit agreement. These projections are estimates which are
inherantly uncertain and 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; 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, 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 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.

Cash. Cash and cash
equivalents was $4.0 million at June 30, 2003. Working capital was $25.0
million at June 30, 2003. Cash and cash equivalents was $26.3 million at
December 31, 2002. The decrease in cash and cash equivalents is due primarily to
the use of $30.0 million to repay borrowings under our credit facility and $3.4
million for capital expenditures, partially offset by $3.1 million of additional
borrowings under our credit facility and cash provided by operating activities.

25



---



Net cash provided by
operating activities increased to $10.1 million for the six months ended
June 30, 2003 compared to $2.0 million in the same period of the prior
year, primarily due to an increase in deferred revenue related to two longterm
tower leases and improved accounts receivable collections, as well as a decrease in other receivables due to
a payment received under our interest rate swap agreement.

Net cash used in investing
activities was $5.1 million for the six months ended June 30, 2003
compared to net cash used in investing activities of $52.7 million for the
same period of the prior year. The decrease is due to no acquisition
activity in the first six months of 2003 as compared to $44.5 million cash used to
purchase the assets of three radio stations for the same period of the prior year and a decrease in
capital expenditures of $4.1 million.

Net cash used in
financing activities was $27.4 million for the six months ended June 30,
2003 compared to net cash provided by financing activities of $32.1 million for
the same period of the prior year. The
difference is primarily due to increased repayments under our credit facility of
$30.0 million for the six months ended June 30, 2003 as compared to $4.0 million
for the same period in the prior year, partially offset by additional borrowings of $3.0
million under the credit facility for the six months ended June 30, 2003 as compared to $36.3 million
for the same period in the prior year.

Credit Facility. Our
wholly-owned subsidiary, HoldCo, is
the borrower under our credit facility. At June 30, 2003, $66.1 million was
outstanding under the credit facility. The credit facility was amended as of
March 28, 2003. The description of the credit facility as set forth below reflects the
terms of the amendment. The borrowing capacity and aggregate commitments under
the credit facility is $127.5 million at June 30, 2003, however the amount we can
borrow is subject to certain restrictions as described below. The credit facility
matures on June 30, 2007. On July 24, 2003 we received a consent from the lenders under our credit
facility to allow us to acquire four radio stations in Jacksonville, Florida for
approximately $8.5 million, which acquisition closed on August 1, 2003.

Amounts outstanding under
the credit facility bear interest at a base rate, at HoldCos option, of the
banks prime rate or LIBOR, plus a spread. For purposes of determining the
interest rate under the credit facility, the prime rate spread ranges from 0% to
1.5%, and the LIBOR spread ranges from 0.875% to 2.75%. At June 30, 2003, the
blended interest rate on amounts outstanding under the credit facility was
4.10%.

The maximum amount that
HoldCo may borrow under the credit facility is limited by a ratio of our
consolidated existing total adjusted debt to pro forma twelve-month cash flow
(the Total Adjusted Funded Debt to Cash Flow Ratio).
The credit facility will allow us to adjust our total debt as used in such
calculation by the lesser of 50% of the aggregate purchase
price of acquisitions of newly acquired non-religious formatted radio stations
that we reformat to a religious talk, conservative
talk or religious music format or $30.0 million and the cash flow from such stations
will not be considered in the calculation of the ratio. The maximum Total Adjusted
Funded Debt to Cash Flow Ratio allowed under the credit facility was 7.00 to 1 as of December 31,
2002. In March 2003, we amended our credit facility to, among other things, extend
the existing Total Adjusted Funded Debt to Cash
Flow Ratio through September 29, 2003 to not less than 7.00 to 1.00, and to
revise the minimum interest coverage ratio. Thereafter,
the maximum ratio will decline periodically until December 31, 2006, at which
point it will remain at 4.25 to 1 through June 2007.
The Total Adjusted Funded Debt to Cash Flow Ratio under the credit facility at
June 30, 2003, on a pro forma basis, was 6.69 to
1, resulting in a borrowing availability of approximately $15.7 million.

The credit facility contains
additional restrictive covenants customary for credit
facilities of the size, type and purpose contemplated which, with specified
exceptions, limits our ability to 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. The credit facility also requires 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, minimum interest coverage (not
less than 1.4 to 1, thereafter increasing periodically until January 1, 2005, at
which point it will remain at 2.5 to 1 until June 2007), minimum debt service
coverage (a static ratio of not less than 1.1 to 1), a maximum
consolidated senior leverage ratio (a static ratio of 3.5 to 1), and minimum
fixed charge coverage (a static ratio of not less than 1.1 to 1). We and all
of our subsidiaries, except for HoldCo, are guarantors of
borrowings under the credit facility. The credit facility is secured by pledges of all of our and our
subsidiaries assets and all of the capital stock of our subsidiaries.

26



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As of June 30,
2003, management believes we were in compliance with all of the covenants under
the terms of the credit facility. Additionally, we are in the process of negotiating
a new credit facility.

91⁄2% Senior Subordinated
Notes due 2007.In September 1997, we issued $150.0 million principal amount
of 91⁄2% Notes. In July 1999, we repurchased $50.0
million in principal amount of those notes with a portion of the net proceeds of
our initial public offering.

In January 2003, we redeemed
the remaining $100.0 million in principal amount of the 91⁄2% Notes from
the proceeds of the issuance of $100.0 million principal amount of 73⁄4% Notes. As a result
of this redemption, we incurred a non-cash charge in the first quarter of 2003
of approximately $1.7 million for the write-off of unamortized bond issue costs.
This was in addition to the $4.8 million premium paid in connection with this
redemption.

9% Senior Subordinated
Notes Due 2011.In June 2001, HoldCo issued $150.0 million principal amount
of 9% Notes. HoldCo used the net proceeds to repay
approximately $145.5 million in borrowings under the credit facility. The
indenture for the 9% Notes contains restrictive coventants that, among others,
limit the incurrence of debt by HoldCo and its subsidiaries, the payment of
dividends, the use of proceeds of specified asset sales and transactions with
affiliates. HoldCo is required to pay $13.5 million per year in interest on the
9% Notes. We and all our subsidiaries (other than HoldCo) are guarantors of the
9% Notes.

As of June 30, 2003,
management believes we were 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 others, 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, 2003,
management believes we were in compliance with all of the covenants under the indenture
for the 73⁄4% Notes.

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

|                                                                          |                        |         |          |   |        
|------------------------------------------------------------------------- | ---------------------- | ------- | -------- | - | -------
|                                                                          | December 31,           |         | June 30,
|                                                                          |                        |         |         
|                                                                          | 2002                   |         | 2003    
|                                                                          |                        |         |         
|                                                                          | (Dollars in thousands) |         |         
|                                                                          |                        |         |         
|Revolving line of credit with banks                                       | $                      | 93,050  |          | $ | 66,050 
|91⁄2% senior subordinated notes due 2007                                    |                        | 100,000 |          |   |       
|73⁄4% senior subordinated notes due 2010                                    |                        | 100,000 |          |   | 100,000
|9% senior subordinated notes due 2011                                     |                        | 150,000 |          |   | 150,000
|Fair value in excess of book value of debt hedged with interest rate swap |                        | 7,790   |          |   | 7,316  
|Capital leases and other loans                                            |                        | 97      |          |   | 82     
|                                                                          |                        |         |         
|                                                                          |                        | 450,937 |          |   | 323,448
|Less current portion                                                      |                        | 100,029 |          |   | 29     
|                                                                          |                        |         |         
|                                                                          | $                      | 350,908 |          | $ | 323,419
|                                                                          |                        |         |          |   |        

27



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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 one interest rate swap
agreement outstanding as of June 30, 2003, which is 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. In addition, on
July 27, 2003, we entered into an additional interest rate swap
agreement. The counter party 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 party, we do not anticipate
nonperformance by the counter party nor would we expect any such loss to be material.

At June 30, 2003, an
interest rate swap agreement with a notional principal amount of $66.0 million
was outstanding. This agreement relates to our $150.0 million 9% senior
subordinated notes due 2011 (9% Notes). This agreement expires in 2011 when
the 9% Notes mature, and
effectively swaps the 9% 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 $7.3 million
at June 30, 2003. 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.
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, 2003 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 4.47% for the six months ended June 30, 2003 and will be 4.21%
for the six month period ended December 31, 2003.

On July 27, 2003, we entered
into 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% fixed interest rate on $24.0 million of the 9% Notes
for a floating rate equal to the LIBOR rate plus 4.86%. Changes in the fair value
of the swap and the changes in the fair value
of debt being hedged will be recorded as part of interest expense. The fair value of
the swap agreement will be included with long-term assets, and the fair value of the
debt hedged by the swap will be recorded in long-term debt consistent with the
maturity date of the swap.
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 will be no income statement effect relative to
the change in the fair value of the swap agreement. The interest rate under the swap
through December 31, 2003 will be 5.98%.

At June 30, 2003 and 2002,
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.

28



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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, 2003, an
interest rate swap agreement with a notional principal amount
of $66.0 million was outstanding. The interest rate swap agreement is 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. This
agreement expires in 2011 when the 9% Notes mature, and effectively swaps the
9.0% fixed interest rate on $66.0 million of our debt for a floating rate equal
to the LIBOR rate plus 3.09%. The estimated fair value of this swap
agreement and the change in fair value of the debt hedged by the swap, based on
current market rates, were each $7.3 million at June 30, 2003. 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. Changes in the fair value of the swap and the changes
in the fair value of the debt being hedged are recorded as part of interest
expense. 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, 2003 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 4.47% for the six months ended June 30, 2003 and will be 4.21%
for the six month period ended December 31, 2003. The counter party
to this interest rate swap agreement is a major financial institution. Although
we are exposed to credit loss in the event of nonperformance by the counter
party, we do not anticipate nonperformance by the counter party nor would we
expect any such loss to be material.

On July 27, 2003, we entered
into 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% fixed interest rate on $24.0 million of the 9% Notes
for a floating rate equal to the LIBOR rate plus 4.86%. Changes in the fair value
of the swap and the changes in the fair value
of debt being hedged will be recorded as part of interest expense. The fair value of
the swap agreement will be included with long-term assets, and the fair value of the
debt hedged by the swap will be recorded in long-term debt consistent with the
maturity date of the swap.
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 will be no income statement effect relative to
the change in the fair value of the swap agreement. The interest rate under the swap
through December 31, 2003 will be 5.98%.

MARKET RISK

In addition to the interest
rate swap agreement 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, 2003, we had borrowed $66.1 million under
the credit facility. As of June 30, 2003, we could borrow up to an
additional $15.7 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 credit facility, the prime rate spread ranges from 0% to 1.875%,
and the LIBOR spread ranges from 0.875% to 3.25%. At June 30, 2003, the
blended interest rate on amounts outstanding under the credit facility was
4.10%. At June 30, 2003, a hypothetical 100 basis point increase in the
prime rate would result in additional interest expense of $0.7 million on an
annualized basis.

In addition to the variable
rate debt disclosed above, we have fixed rate debt with a carrying value of
$250.0 million (relating to the 9% Notes and the 73⁄4% Notes) as of June 30,
2003, with an aggregate fair value of $264.9 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 $250.6 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 $280.4 million.

29



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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-14(c)
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 Securities and Exchange Commission.

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, the company did not take any
corrective actions.

PART II  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

30



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

At the Annual Meeting of Stockholders of the Company
held on June 11, 2003, 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     | 69,060,794 | for, with | 1,677,783 | withheld;    
|2. | Edward G. Atsinger III was elected by a vote of | 69,220,915 | for, with | 1,517,662 | withheld;    
|3. | Eric H. Halvorson was elected by a vote of      | 70,067,067 | for, with | 671,510   | withheld;    
|4. | Roland S. Hinz was elected by a vote of         | 70,232,484 | for, with | 506,093   | withheld;    
|5. | Donald P. Hodel was elected by a vote of        | 14,695,524 | for, with | 506,093   | withheld;    
|6. | Richard A. Riddle was elected by a vote of      | 70,232,684 | for, with | 505,893   | withheld;    
|7. | David Davenport was elected by a vote of        | 14,695,524 | for, with | 506,093   | withheld; and
|8. | Paul Pressler was elected by a vote of          | 70,367,184 | for, with | 371,393   | withheld.    

B.      To increase by 600,000 the number of
shares of Class A common stock reserved for issuance under the company's 1999
Stock Incentive Plan:

68,974,468 for,
with 1,763,909 against and 200 abstaining.

C.      To reapprove the 1999 Stock
Incentive Plan:

70,548,942 for,
with 188,935 against and 700 abstaining.

D.      To ratify the selection
of Ernst & Young, LLP as the Company's independent auditors:

70,714,007 for,
with 24,370 against and 200 abstaining.

The total number of shares of Class A common stock
outstanding as of April 18, 2003, the record date for the Annual Meeting, was 17,930,417, 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.

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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)                                                                                                                         

32



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|     |  |                                                                                                                                                                                                                                                                                                                                                                                         
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.09 |  | Fourth Amended and Restated Credit Agreement dated as of June 15, 2001, by and among Salem
Communications Holding Corporation, a Delaware corporation, The Bank of New York, as Administrative
Agent, Bank of America, N.A., as Syndication Agent, Fleet National Bank as Documentation Agent, Union
Bank of California, N.A. and The Bank of Nova Scotia, as Co-agents and lenders. (6)
|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 |  | First Amendment to the Fourth
Amended and Restated Credit Agreement, dated as of December 27, 2001, by and
among Salem Communications Holding Corporation, a Delaware corporation, The Bank of New York, as
administrative agent, the other agents party thereto, and the Lenders party thereto (incorporated by
reference to previously filed exhibit 4.12). (7)                       
|4.12 |  | Second Amendment to the Fourth Amended and Restated Credit Agreement, dated as of April
30, 2002, by and among Salem Communications Holding Corporation, a Delaware corporation, The Bank of New York, as
administrative agent, the other agents party thereto, and the Lenders party thereto (incorporated by
reference to previously filed exhibit 4.13). (8)                         
|4.13 |  | Third Amendment to the Fourth
Amended and Restated Credit Agreement, dated as of
December 16, 2002, by and among Salem Holding, The Bank of New York, in its individual capacity and as
administrative agent for the lenders thereunder, and the lenders party thereto
(incorporated by reference to previously filed exhibit 10.1). (9)                                                
|4.14 |  | Fourth Amendment to the Fourth
Amended and Restated Credit Agreement, dated as of
March 28, 2003, by and among Salem Holding, The Bank of New York, in its individual capacity and as
administrative agent for the lenders thereunder, and the lenders party thereto
(incorporated by reference to previously filed exhibit 4.24). (10)                                                 
|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). (9)                                                                                                          
|4.20 |  | Form of 73⁄4% Senior Subordinated
Notes (filed as part of exhibit 4.19). (9)                                                                                                                                                                                                                                                                                                              
|4.21 |  | Form of Note Guarantee (filed as part of
exhibit 4.19). (9)                                                                                                                                                                                                                                                                                                                             
|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. (11)                                                                                                                                                                                               
|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. (11)                                                                                                                                                                                                
|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. (11)                                                                                                                                                                                                   
|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. (11)                                                                                                                                                                                                    
|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.                                                                                                                                                                                                 

33



---



|         |  |                                                                                                                                                                                                                                                                          
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.01.01 |  | Employment Agreement, dated July 1, 2001,
between Salem Communications Holding Corporation and Edward G. Atsinger III (incorporated
by reference to previously filed exhibit 10.01.02). (6)                                                                              
|10.01.02 |  | Split-Dollar Life Insurance Agreement
effective as of April 2, 1997, by and between Salem Communications Corporation,
Edward G. Atsinger III and Eric H. Halvorson, as Trustee under that certain Declaration
of Trust (Atsinger Trust No. 1) dated as of April 1, 1997. 
|10.02.01 |  | Employment Agreement, dated July 1, 2001,
between Salem Communications Holding Corporation and Stuart W. Epperson (incorporated
by reference to previously filed exhibit 10.02.01). (16)                                                                                 
|10.02.02 |  | Split-Dollar Life Insurance Agreement
effective as of April 2, 1997, by and between Salem Communications Corporation,
Stuart W. Epperson and Edward G. Atsinger III, as Trustee under that certain Declaration
of Trust (Epperson Trust No. 1) dated as of April 1, 1997.
|10.03    |  | Consulting Agreement dated
July 1, 2001, between Salem and Eric H. Halvorson (incorporated
by reference to previously filed exhibit 10.03.06). (7)                                                                                                                       
|10.04    |  | Employment Agreement, dated September 15, 2000,
between Salem Communications Holding Corporation and David A.R. Evans (incorporated
by reference to previously filed exhibit 10.04.01). (12)                                                                             
|10.05.01 |  | Antenna/tower lease between Caron Broadcasting, Inc. (WHLO-AM/Akron, Ohio) and Messrs. Atsinger and
Epperson expiring 2007. (3)                                                                                                                                          
|10.05.02 |  | Antenna/tower/studio lease between Caron Broadcasting, Inc. (WTSJ-AM/ Cincinnati, Ohio) and Messrs.
Atsinger and Epperson expiring 2007. (3)                                                                                                                             
|10.05.03 |  | Antenna/tower lease between Caron Broadcasting, Inc. (WHK-FM/Canton, Ohio) and Messrs. Atsinger and
Epperson expiring 2007. (3)                                                                                                                                          
|10.05.04 |  | Antenna/tower/studio lease between Common Ground Broadcasting, Inc. (KKMS-AM/Eagan, Minnesota) and
Messrs. Atsinger and Epperson expiring in 2006. (3)                                                                                                                   
|10.05.05 |  | Antenna/tower lease between Common Ground Broadcasting, Inc. (WHK-AM/ Cleveland, Ohio) and Messrs.
Atsinger and Epperson expiring 2008. (3)                                                                                                                              
|10.05.06 |  | Antenna/tower lease (KFAX-FM/Hayward, California) and Salem Broadcasting Company, a partnership
consisting of Messrs. Atsinger and Epperson, expiring in 2003. (3)                                                                                                       
|10.05.07 |  | Antenna/tower/studio lease between Inland Radio, Inc. (KKLA-AM/San Bernardino, California) and
Messrs. Atsinger and Epperson expiring 2002. (3)                                                                                                                          
|10.05.08 |  | Antenna/tower lease between Inspiration Media, Inc. (KGNW-AM/Seattle, Washington) and Messrs.
Atsinger and Epperson expiring in 2002. (3)                                                                                                                                

34



---



|            |  |                                                                                                                                                                                                                   
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.05.09    |  | Antenna/tower lease between Inspiration Media, Inc. (KLFE-AM/Seattle, Washington) and The Atsinger
Family Trust and Stuart W. Epperson Revocable Living Trust expiring in 2004. (3)                               
|10.05.11.01 |  | Antenna/tower/studio lease between Pennsylvania Media Associates, Inc. (WZZD-AM/WFIL-AM/Philadelphia,
Pennsylvania) and Messrs. Atsinger and Epperson, as assigned from WEAZ-FM Radio, Inc., expiring 2004. (3)   
|10.05.11.02 |  | Antenna/tower/studio lease between Pennsylvania Media Associates, Inc. (WZZD-AM/WFIL-AM/Philadelphia,
Pennsylvania) and The Atsinger Family Trust and Stuart W. Epperson Revocable Living Trust expiring 2004. (3)
|10.05.12    |  | Antenna/tower lease between Radio 1210, Inc. (KPRZ-AM/Olivenhain, California) and The Atsinger Family
Trust expiring in 2002. (3)                                                                                 
|10.05.13    |  | Antenna/tower lease between Salem Media of Texas, Inc. and Atsinger Family Trust/Epperson Family
Limited Partnership (KSLR-AM/San Antonio, Texas). (13)                                                           
|10.05.14    |  | Antenna/turner/studio leases between Salem Media Corporation (KLTX-AM/Long Beach and Paramount,
California) and Messrs. Atsinger and Epperson expiring in 2002. (3)                                               
|10.05.15    |  | Antenna/tower lease between Salem Media of
Colorado, Inc. (KNUS-AM/Denver-Boulder, Colorado) and Messrs. Atsinger and Epperson expiring 2006. (3)                                                                 
|10.05.16    |  | Antenna/tower lease between Salem Media of
Colorado, Inc. and Atsinger Family Trust/Epperson Family Limited Partnership
(KRKS-AM/KBJD-AM/Denver, Colorado). (13)                                                  
|10.05.17.01 |  | Studio Lease between Salem Media of Oregon, Inc. (KPDQ-AM/FM/Portland, Oregon) and Edward G. Atsinger
III, Mona J. Atsinger, Stuart W. Epperson, and Nancy K. Epperson expiring 2002. (3)                         
|10.05.17.02 |  | Antenna/tower lease between Salem Media of Oregon, Inc.
(KPDQ-AM/FM/Raleigh Hills, Oregon), and Messrs. Atsinger and Epperson expiring 2002. (3)                                                                  
|10.05.18    |  | Antenna/tower lease between Salem Media of Pennsylvania, Inc. (WORD-FM/WPIT-AM/Pittsburgh,
Pennsylvania) and The Atsinger Family Trust and Stuart W. Epperson Revocable Living Trust expiring 2003. (3)           
|10.05.19    |  | Antenna/tower lease between Salem Media of Texas, Inc. (KSLR-AM/San Antonio, Texas) and
Epperson-Atsinger 1983 Family Trust expiring 2007. (3)                                                                    
|10.05.20    |  | Antenna/tower lease between South Texas Broadcasting, Inc. (KENR-AM/Houston-Galveston, Texas) and
Atsinger Family Trust and Stuart W. Epperson Revocable Living Trust expiring 2005. (3)                          
|10.05.21    |  | Antenna/tower lease between Vista Broadcasting, Inc. (KFIA-AM/Sacramento, California) and The
Atsinger Family Trust and Stuart W. Epperson Revocable Living Trust expiring 2006. (3)                              
|10.05.22    |  | Antenna/tower lease between South Texas Broadcasting, Inc. (KKHT-FM/Houston-Galveston, Texas) and
Sonsinger Broadcasting Company of Houston, LP expiring 2008. (14)                                               
|10.05.23    |  | Antenna/tower lease between Inspiration Media of Texas, Inc. (KTEK-AM/Alvin, Texas) and the Atsinger
Family Trust and The Stuart W. Epperson Revocable Living Trust expiring 2009. (14)                           

35



---



|         |  |                                                                                                                                                                                              
|-------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.06    |  | Asset Purchase Agreement, dated June 2002, by and between Caron Broadcasting, Inc. and
Susquehana Radio Corp. (WYGY-FM, Cincinnati, OH). (15)                                                
|10.07.01 |  | Evidence of Key man life insurance policy no. 2256440M insuring Edward G. Atsinger III in the face
amount of $5,000,000 (incorporated by reference to previously filed exhibit 10.09.01). (3)
|10.07.02 |  | Evidence of Key man life insurance policy no. 2257474H insuring Edward G. Atsinger III in the face
amount of $5,000,000 (incorporated by reference to previously filed exhibit 10.09.02). (3)
|10.07.03 |  | Evidence of Key man life insurance policy no. 2257476B insuring Stuart W. Epperson in the face amount
of $5,000,000 (incorporated by reference to previously filed exhibit 10.09.03). (3)    
|10.08    |  | 1999 Stock Incentive Plan
(incorporated by reference to previously filed exhibit 10.10). (4)                                                                                                 
|10.09    |  | Management Services Agreement by and among Salem and Salem
Communications Holding Corporation, dated August 25, 2000
(incorporated by reference to previously filed exhibit 10.11). (7)      
|21.01    |  | Subsidiaries of Salem Communications Corporation.                                                                                                                                            
|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.                                                                                                                        

36



---



|     |  |                                                                                                                                                                                                                                                       
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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
Annual Report on Form 10-K, filed with the Securities and Exchange Commission on April 2, 2001.                                                       
|(8)  |  | 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 May 15, 2002.                                                     
|(9)  |  | 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.                                                   
|(10) |  | 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 April 2, 2001.                                                       
|(11) |  | 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.                                                       
|(12) |  | 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 14, 2001.                                                
|(13) |  | Incorporated by reference to the exhibit of the same number,
unless otherwise noted, to Salems
Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 30, 2000.                                                      
|(14) |  | 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, 1999.                                                      
|(15) |  | 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, 2002.                                                  
|(16) |  | Incorporated by reference to the exhibit of the same number,
unless otherwise noted, to Salems
Annual Report on Form 10-K, filed with the Securities and Exchange Commission on April 1, 2002.                                                       

37



---



(b) REPORTS ON FORM 8-K

The company filed a current
report on Form 8-K dated May 5, 2003 reporting the issuance of a press release
of even date on the financial results of the March 31, 2003 fiscal quarter.

The company filed a current
report on Form 8-K dated June 2, 2003 reporting its participation
at the Bear Stearns 12th Annual Global Credit Conference and Deutsche Bank 11th
Anuual Media Conference. In addition, the company reported the issuance of a press release
of even date regarding an update to its projected results of operations for the fiscal
quarter ending June 30, 2003.

38



---



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 5, 2003 |                                                   | 
| |                | By: /s/ EDWARD G. ATSINGER III                    | 
| |                |                                                   | 
| |                | Edward G. Atsinger III                            | 
| |                | (Principal Executive Officer)                     | 
| | August 5, 2003 |                                                   | 
| |                | By: /s/ DAVID A.R. EVANS                          | 
| |                |                                                   | 
| |                | David A.R. Evans                                  | 
| |                | Senior Vice President and Chief Financial Officer | 
| |                | (Principal Financial Officer)                     | 

39



---



EXHIBIT INDEX

|        |  |                                                                                                                                                                                        
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
|Number  |  | Description of Exhibits                                                                                                                                                                
|        |  |                                                                                                                                                                                        
|        |  |                                                                                                                                                                                        
|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.       
|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.        
|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.
|21.01   |  | Subsidiaries of Salem Communications Corporation.                                                                                                                                      
|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.                                                                                                            

40



---



EXHIBIT 4.26

`SALEM COMMUNICATIONS HOLDING CORPORATION
                                                   CONSENT NO. 2

         CONSENT NO. 2 (this  Consent),  dated as of July 23, 2003,  under the Fourth Amended and Restated Credit
Agreement,  dated  as of June  15,  2001,  by and  among  SALEM  COMMUNICATIONS  HOLDING  CORPORATION,  a  Delaware
corporation (the  Borrower),  THE BANK OF NEW YORK, as administrative  agent for the Lenders  thereunder (in such
capacity,  the Administrative  Agent),  the other agents party thereto, and the Lenders party thereto, as amended
by Amendment No. 1, dated as of December 27, 2001,  Amendment  No. 2, dated as of April 30, 2002,  Amendment No. 3,
dated as of December 13, 2002,  Amendment No. 4, dated as of March 28, 2003,  and Amendment No. 5, dated as of June
12, 2003 (as so amended, the Credit Agreement).

                                                          RECITALS

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

         B.       The Borrower has requested  that the  Administrative  Agent and the Required  Lenders  consent to
the items set forth herein upon the terms and conditions  contained herein,  and the  Administrative  Agent and the
Required 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 11.1 of the Credit Agreement, the parties hereto agree as follows:

Notwithstanding  the  provisions  of Section  8.3 of the  Credit  Agreement,  provided  that no Default or Event of
Default exists or would exist  immediately  before or after giving effect  thereto,  the  Administrative  Agent and
Required  Lenders (i) consent to the  consummation  on or before  December  31,  2003 of the  acquisition  by Caron
Broadcasting,  Inc. of WBGB-FM, WZNZ-AM, WJGR-AM and WZAZ-AM,  Jacksonville Florida, for an amount not in excess of
$9,200,000 and (ii) agree that the Borrower shall not be required to deliver the pro forma  compliance  certificate
with respect thereto otherwise required by such Section.

Paragraph  1 of this  Consent  shall not become  effective  until the  Administrative  Agent  shall  have  received
counterparts  of this Consent duly executed by the  Borrower,  the  Guarantors,  the  Administrative  Agent and the
Required Lenders.

The Borrower  hereby agrees to pay all fees required to be paid in connection  with this Consent at the time and in
the amounts required pursuant to that certain fee letter,  dated July 11, 2003, from the  Administrative  Agent and
BNY Capital Markets, Inc. to, and accepted by, the Borrower.

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

In order to induce the  Administrative  Agent and the  Required  Lenders to execute and deliver this  Consent,  the
Borrower and the Guarantors  each (a) certifies that,  immediately  before and after giving effect to this Consent,
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,  (b)
certifies that,  immediately  before and after giving effect to this Consent,  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
Consent.

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.

This Consent 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
Consent to produce or account for more than one counterpart signed by the party to be charged.

This Consent shall be governed by, and construed and  interpreted in accordance  with, the laws of the State of New
York, without regard to principles of conflict of laws.

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

                                                  [signature pages follow]`





---



`SALEM COMMUNICATIONS HOLDING CORPORATION
                                                   CONSENT NO. 2
                                   FOURTH AMENDED AND RESTATED CREDIT AGREEMENT`

| |  |  |  |                                          |  |                             
| |  |  |  | ---------------------------------------- |  | ----------------------------
| |  |  |  | SALEM COMMUNICATIONS HOLDING CORPORATION
| |  |  |  |                                         
| |  |  |  |                                         
| |  |  |  |                                         
| |  |  |  | By:                                      |  | /s/ JONATHAN L. BLOCK       
| |  |  |  |                                          |  |                             
| |  |  |  | Name:                                    |  | Jonathan L. Block           
| |  |  |  | Title:                                   |  | Vice President and Secretary

`CONSENTED TO:`

| |  |  |  |                                  |  |                             
| |  |  |  | -------------------------------- |  | ----------------------------
| |  |  |  | SALEM COMMUNICATIONS CORPORATION
| |  |  |  |                                 
| |  |  |  |                                 
| |  |  |  |                                 
| |  |  |  | By:                              |  | /s/ JONATHAN L. BLOCK       
| |  |  |  |                                  |  |                             
| |  |  |  | Name:                            |  | Jonathan L. Block           
| |  |  |  | Title:                           |  | Vice President and Secretary
| |  |  |  |                                  |  |                             
| |  |  |  |                                  |  |                             
| |  |  |  |                                  |  |                             





---



`CONSENTED TO:

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 CORPORATION
PENNSYLVANIA MEDIA ASSOCIATES, INC.
RADIO 1210, INC.
REACH SATELLITE NETWORK, INC.
SALEM COMMUNICATIONS ACQUISITION CORPORATION
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 PENNSYLVANIA, INC.
SALEM MEDIA OF VIRGINIA, INC.
SALEM MEDIA OF TEXAS, INC.
SALEM MUSIC NETWORK, INC.
SALEM RADIO NETWORK INCORPORATED
SALEM RADIO OPERATIONS - PENNSYLVANIA, INC.
SALEM RADIO PROPERTIES, INC.
SALEM RADIO REPRESENTATIVES, INC.
SCA LICENSE CORPORATION
SOUTH TEXAS BROADCASTING, INC.
SRN NEWS NETWORK, INC.
VISTA BROADCASTING, INC.

AS TO EACH OF THE FOREGOING:`

| |  |  |  |        |  |                             
| |  |  |  | ------ |  | ----------------------------
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  | By:    |  | /s/ JONATHAN L. BLOCK       
| |  |  |  |        |  |                             
| |  |  |  | Name:  |  | Jonathan L. Block           
| |  |  |  | Title: |  | Vice President and Secretary





---



`CONSENTED TO:

INSPIRATION MEDIA OF PENNSYLVANIA, LP

By: Salem Radio Operations-Pennsylvania, Inc.,
     its General Partner`

| |  |  |  |        |  |                             
| |  |  |  | ------ |  | ----------------------------
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  | By:    |  | /s/ JONATHAN L. BLOCK       
| |  |  |  |        |  |                             
| |  |  |  | Name:  |  | Jonathan L. Block           
| |  |  |  | Title: |  | Vice President and Secretary

`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: Salem Media Corporation, as Manager`

| |  |  |  |        |  |                             
| |  |  |  | ------ |  | ----------------------------
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  | By:    |  | /s/ JONATHAN L. BLOCK       
| |  |  |  |        |  |                             
| |  |  |  | Name:  |  | Jonathan L. Block           
| |  |  |  | Title: |  | Vice President and Secretary

`ONEPLACE, LLC
SCA-PALO ALTO, LLC

AS TO EACH OF THE FOREGOING

By: SCA License Corporation`

| |  |  |  |        |  |                             
| |  |  |  | ------ |  | ----------------------------
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  | By:    |  | /s/ JONATHAN L. BLOCK       
| |  |  |  |        |  |                             
| |  |  |  | Name:  |  | Jonathan L. Block           
| |  |  |  | Title: |  | Vice President and Secretary





---



`THE BANK OF NEW YORK,
                                            in its individual capacity
                                            and as Administrative Agent`

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





---



`FLEET NATIONAL BANK`

| |  |  |  |        |  |                   
| |  |  |  | ------ |  | ------------------
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  | By:    |  | /s/ SRBUI SEFERIAN
| |  |  |  |        |  |                   
| |  |  |  | Name:  |  | Srbui Seferian    
| |  |  |  | Title: |  | Vice President    





---



`UNION BANK OF CALIFORNIA, N.A.`

| |  |  |  |        |  |                       
| |  |  |  | ------ |  | ----------------------
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  | By:    |  | /s/ MATTHEW H. FLEMING
| |  |  |  |        |  |                       
| |  |  |  | Name:  |  | Matthew H. Fleming    
| |  |  |  | Title: |  | Vice President        





---



`THE BANK OF NOVA SCOTIA`

| |  |  |  |        |  |                     
| |  |  |  | ------ |  | --------------------
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  | By:    |  | /s/ IAN A. HODGART  
| |  |  |  |        |  |                     
| |  |  |  | Name:  |  | Ian A. Hodgart      
| |  |  |  | Title: |  | Authorized Signatory





---



`FIRST HAWAIIAN BANK`

| |  |  |  |        |  |    
| |  |  |  | ------ |  | ---
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  | By:    |  | /s/
| |  |  |  |        |  |    
| |  |  |  | Name:  |  |    
| |  |  |  | Title: |  |    





---



`ING CAPITAL LLC`

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





---



`DEUTSCHE BANK TRUST COMPANY AMERICAS`

| |  |  |  |        |  |    
| |  |  |  | ------ |  | ---
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  | By:    |  | /s/
| |  |  |  |        |  |    
| |  |  |  | Name:  |  |    
| |  |  |  | Title: |  |    





---



`JPMORGAN CHASE BANK`

| |  |  |  |        |  |                     
| |  |  |  | ------ |  | --------------------
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  | By:    |  | /s/ DAVID M. MALLETT
| |  |  |  |        |  |                     
| |  |  |  | Name:  |  | David M. Mallett    
| |  |  |  | Title: |  | Vice President      





---



`SUNTRUST BANK`

| |  |  |  |        |  |                        
| |  |  |  | ------ |  | -----------------------
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  |       
| |  |  |  | By:    |  | /s/ THOMAS C. KING, JR.
| |  |  |  |        |  |                        
| |  |  |  | Name:  |  | Thomas C. King, Jr.    
| |  |  |  | Title: |  | Director               





---



EXHIBIT 4.24

`2


                   SALEM COMMUNICATIONS HOLDING CORPORATION, a Delaware corporation, as Issuer,

                                         SALEM COMMUNICATIONS CORPORATION
                                                 ATEP RADIO, INC.
                                                 BISON MEDIA, INC.
                                             CARON BROADCASTING, INC.
                                             CCM COMMUNICATIONS, INC.
                                         COMMON GROUND BROADCASTING, INC.
                                       GOLDEN GATE BROADCASTING COMPANY INC.
                                              INSPIRATION MEDIA, INC.
                                       INSPIRATION MEDIA OF PENNSYLVANIA, LP
                                          INSPIRATION MEDIA OF TEXAS, LLC
                                               KINGDOM DIRECT, INC.
                                        NEW ENGLAND CONTINENTAL MEDIA, INC.
                                    NEW INSPIRATION BROADCASTING COMPANY, INC.
                                                 NI ACQUISITION CORPORATION
                                                   ONEPLACE, LLC
                                        PENNSYLVANIA MEDIA ASSOCIATES, INC.
                                                 RADIO 1210, INC.
                                           REACH SATELLITE NETWORK, INC.
                                   SALEM COMMUNICATIONS ACQUISITION CORPORATION
                                              SALEM MEDIA CORPORATION
                                           SALEM MEDIA OF COLORADO, INC.
                                           SALEM MEDIA OF GEORGIA, INC.
                                            SALEM MEDIA OF HAWAII, INC.
                                           SALEM MEDIA OF ILLINOIS, LLC
                                           SALEM MEDIA OF KENTUCKY, INC.
                                           SALEM MEDIA OF NEW YORK, LLC
                                             SALEM MEDIA OF OHIO, INC.
                                            SALEM MEDIA OF OREGON, INC.
                                         SALEM MEDIA OF PENNSYLVANIA, INC.
                                            SALEM MEDIA OF TEXAS, INC.
                                           SALEM MEDIA OF VIRGINIA, INC.
                                             SALEM MUSIC NETWORK, INC.
                                         SALEM RADIO NETWORK INCORPORATED
                                            SALEM RADIO OPERATIONS, LLC
                                    SALEM RADIO OPERATIONS  PENNSYLVANIA, INC.
                                           SALEM RADIO PROPERTIES, INC.
                                         SALEM RADIO REPRESENTATIVES, INC.
                                            SALEM SATELLITE MEDIA, LLC
                                              SCA LICENSE CORPORATION
                                                SCA-PALO ALTO, LLC
                                          SOUTH TEXAS BROADCASTING, INC.
                                              SRN NEWS NETWORK, INC.
                                             VISTA BROADCASTING, INC.,
                                                  as Guarantors,
                                                        and

                                         THE BANK OF NEW YORK, as Trustee
                                                 _________________

                                           SUPPLEMENTAL INDENTURE NO. 2

                                             Dated as of June 12, 2003

                                                        to

                                                     INDENTURE

                                           Dated as of December 23, 2002`





---



`THIS  SUPPLEMENTAL  INDENTURE NO. 2, dated as of June 12, 2003 (this  "Supplemental  Indenture No. 2"), is
hereby  entered  into  by and  among  SALEM  COMMUNICATIONS  HOLDING  CORPORATION,  a  Delaware  corporation,  (the
"Issuer"),  the guarantors  listed on the signature pages hereto  (collectively,  the "Guarantors") and THE BANK OF
NEW YORK, a New York banking corporation, as indenture trustee (the "Trustee").

                                                     RECITALS

         WHEREAS,  the Issuer, the guarantors named therein and the Trustee have previously  executed and delivered
an Indenture,  dated as of December 23, 2002 (the "Indenture",  as amended by Supplemental  Indenture No. 1 thereto
dated December 23, 2002 and by this  Supplemental  Indenture No. 2, the  "Supplemented  Indenture"),  providing for
the issuance of 73⁄4% Senior  Subordinated  Notes due 2010 (the  "Securities")  in the aggregate  principal amount of
$100,000,000;

         WHEREAS,  Section 9.01 of the  Indenture  provides,  among other  things,  that without the consent of any
Holders,  the Issuer and the guarantors  thereto,  when authorized by a Board Resolution,  and the Trustee,  at any
time and from time to time, may enter into one or more  supplemental  indentures to make any provision with respect
to matters or questions  arising under the Indenture  provided that any such provision  shall not adversely  affect
the interests of the holders of the Securities;

         WHEREAS,  NI Acquisition  Corporation is a California  corporation and a wholly-owned  subsidiary of Salem
Communications  Holding  Corporation,  a Guarantor,  and Salem Satellite Media, LLC is a Delaware limited liability
company  and a  wholly-owned  subsidiary  of Salem  Media  Corporation,  a  Guarantor;  and it is  desired  that NI
Acquisition  Corporation and Salem Satellite Media,  LLC each become a Guarantor under the Supplemented  Indenture;
and

         WHEREAS,  in  accordance  with Section 9.03 of the  Indenture,  the Issuer has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel,  each stating that this Supplemental  Indenture No. 2 is permitted
by the  Indenture  and that all  conditions  precedent  provided in the  Indenture  relating  to this  Supplemental
Indenture No. 2 have been complied with.

         NOW, THEREFORE, each party hereto agrees as follows for the benefit of the other party:

                                                     ARTICLE I
                                  RELATION TO SUPPLEMENTED INDENTURE; DEFINITIONS

         SECTION 1.01.     This  Supplemental  Indenture  No. 2 constitutes  an integral  part of the  Supplemented
Indenture.

         SECTION 1.02.     For all purposes of this  Supplemental  Indenture No. 2,  capitalized  terms used herein
without definition shall have the meanings specified in the Indenture.

                                                    ARTICLE II
                                             ASSUMPTION OF OBLIGATIONS

         SECTION 2.01.     Each Guarantor named herein hereby expressly  assumes all of the obligations,  covenants
and  duties of a  Guarantor  under the  Guarantee  and the  Supplemented  Indenture,  and,  as hereby  amended  and
supplemented, the Supplemented Indenture shall remain in full force and effect.

                                                    ARTICLE III
                                                   MISCELLANEOUS

         SECTION 3.01.     This  Supplemental  Indenture No. 2 shall be construed in connection  with and as a part
of the Supplemented Indenture.

         SECTION 3.02.     The  headings  herein are for  convenience  only and shall not  affect the  construction
thereof.

         SECTION 3.03.     All covenants and  agreements in this  Supplemental  Indenture  No. 2 by the  Guarantors
shall bind their respective  successors and assigns,  whether so expressed or not. All agreements of the Trustee in
this Supplemental Indenture No. 2 shall bind its successors, co-indenture trustees, if any, and agents.

         SECTION 3.04.     In case any provision in this  Supplemental  Indenture  No. 2 shall be invalid,  illegal
or unenforceable,  the validity,  legality and  enforceability of the remaining  provisions shall not in any way be
affected or impaired thereby.

         SECTION 3.05.     THIS  SUPPLEMENTAL  INDENTURE  NO. 2 SHALL BE CONSTRUED IN  ACCORDANCE  WITH THE LAWS OF
THE STATE OF NEW YORK,  WITHOUT  REFERENCE TO ITS  CONFLICTS OF LAW  PROVISIONS,  AND THE  OBLIGATIONS,  RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

         SECTION 3.06.     This  Supplemental  Indenture No. 2 may be executed in any number of counterparts,  each
of which so executed shall be deemed to be an original,  but all such  counterparts  shall together  constitute but
one and the same instrument.

         SECTION 3.07.     The  Trustee  makes  no  representation  as to  the  validity  or  sufficiency  of  this
Supplemental  Indenture  No. 2. The  recitals  and  statements  herein  are  deemed to be those of the  Issuer  and
Guarantors and not of the Trustee.`





---



`IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture No. 2 to be duly executed
by their respective officers hereunto duly authorized, as of the day and year first above written.

                                                          SALEM COMMUNICATIONS
                                                          HOLDING CORPORATION,
                                                          a Delaware corporation, as Issuer


Attest:   /s/ JONATHAN L. BLOCK                           By:          /s/ DAVID A.R. EVANS
          ---------------------                                        --------------------
         Jonathan L. Block                                Name:        David A.R. Evans
Title:   Secretary                                        Title:       Senior Vice President and
                                                                       Chief Financial Officer`





---



`SALEM COMMUNICATIONS CORPORATION
                                    ATEP RADIO, INC.
                                    BISON MEDIA, INC.
                                    CARON BROADCASTING, INC.
                                    CCM COMMUNICATIONS, INC.
                                    COMMON GROUND BROADCASTING, INC.
                                    GOLDEN GATE BROADCASTING COMPANY, INC.
                                    INSPIRATION MEDIA, INC.
                                    INSPIRATION MEDIA OF PENNSYLVANIA, LP
                                    INSPIRATION MEDIA OF TEXAS, LLC
                                    KINGDOM DIRECT, INC.
                                    NEW ENGLAND CONTINENTAL MEDIA, INC.
                                    NEW INSPIRATION BROADCASTING COMPANY, INC.
                                    NI ACQUISITION CORPORATION
                                    ONEPLACE, LLC
                                    PENNSYLVANIA MEDIA ASSOCIATES, INC.
                                    RADIO 1210, INC.
                                    REACH SATELLITE NETWORK, INC.
                                    SALEM COMMUNICATIONS ACQUISITION
                                            CORPORATION
                                    SALEM MEDIA CORPORATION
                                    SALEM MEDIA OF COLORADO, INC.
                                    SALEM MEDIA OF GEORGIA, INC.
                                    SALEM MEDIA OF HAWAII, INC.
                                    SALEM MEDIA OF ILLINOIS, LLC,
                                    SALEM MEDIA OF KENTUCKY, INC.
                                    SALEM MEDIA OF NEW YORK, LLC
                                    SALEM MEDIA OF OHIO, INC.
                                    SALEM MEDIA OF OREGON, INC.
                                    SALEM MEDIA OF PENNSYLVANIA, INC.
                                    SALEM MEDIA OF TEXAS, INC.
                                    SALEM MEDIA OF VIRGINIA, INC.
                                    SALEM MUSIC NETWORK, INC.
                                    SALEM RADIO NETWORK INCORPORATED
                                    SALEM RADIO OPERATIONS, LLC
                                    SALEM RADIO OPERATIONS-PENNSYLVANIA, INC.
                                    SALEM RADIO PROPERTIES, INC.
                                    SALEM RADIO REPRESENTATIVES, INC.
                                    SALEM SATELLITE MEDIA, LLC
                                    SCA LICENSE CORPORATION
                                    SCA-PALO ALTO, LLC
                                    SOUTH TEXAS BROADCASTING, INC.
                                    SRN NEWS NETWORK, INC.
                                    VISTA BROADCASTING, INC.
                                       as Guarantors


Attest:  /s/ JONATHAN L. BLOCK                            By:          /s/ DAVID A.R. EVANS
         ---------------------                                         --------------------
         Jonathan L. Block                                Name:        David A.R. Evans
Title:   Secretary                                        Title:       Senior Vice President and
                                                                       Chief Financial Officer`





---



`THE BANK OF NEW YORK,
                                                          a New York banking corporation, as Trustee



                                                          By  :        /s/ STACEY POINDEXTER
                                                                       ---------------------
                                                          Name:        Stacey Poindexter
Title:   Assistant Treasurer`





---



EXHIBIT 4.25

`SALEM COMMUNICATIONS HOLDING CORPORATION, a Delaware corporation, as Issuer,

                                         SALEM COMMUNICATIONS CORPORATION
                                                 ATEP RADIO, INC.
                                                 BISON MEDIA, INC.
                                             CARON BROADCASTING, INC.
                                             CCM COMMUNICATIONS, INC.
                                         COMMON GROUND BROADCASTING, INC.
                                       GOLDEN GATE BROADCASTING COMPANY INC.
                                              INSPIRATION MEDIA, INC.
                                       INSPIRATION MEDIA OF PENNSYLVANIA, LP
                                          INSPIRATION MEDIA OF TEXAS, LLC
                                               KINGDOM DIRECT, INC.
                                        NEW ENGLAND CONTINENTAL MEDIA, INC.
                                    NEW INSPIRATION BROADCASTING COMPANY, INC.
                                                 NI ACQUISITION CORPORATION
                                                   ONEPLACE, LLC
                                        PENNSYLVANIA MEDIA ASSOCIATES, INC.
                                                 RADIO 1210, INC.
                                           REACH SATELLITE NETWORK, INC.
                                   SALEM COMMUNICATIONS ACQUISITION CORPORATION
                                              SALEM MEDIA CORPORATION
                                           SALEM MEDIA OF COLORADO, INC.
                                           SALEM MEDIA OF GEORGIA, INC.
                                            SALEM MEDIA OF HAWAII, INC.
                                           SALEM MEDIA OF ILLINOIS, LLC
                                           SALEM MEDIA OF KENTUCKY, INC.
                                           SALEM MEDIA OF NEW YORK, LLC
                                             SALEM MEDIA OF OHIO, INC.
                                            SALEM MEDIA OF OREGON, INC.
                                         SALEM MEDIA OF PENNSYLVANIA, INC.
                                            SALEM MEDIA OF TEXAS, INC.
                                           SALEM MEDIA OF VIRGINIA, INC.
                                             SALEM MUSIC NETWORK, INC.
                                         SALEM RADIO NETWORK INCORPORATED
                                            SALEM RADIO OPERATIONS, LLC
                                    SALEM RADIO OPERATIONS  PENNSYLVANIA, INC.
                                           SALEM RADIO PROPERTIES, INC.
                                         SALEM RADIO REPRESENTATIVES, INC.
                                            SALEM SATELLITE MEDIA, LLC
                                              SCA LICENSE CORPORATION
                                                SCA-PALO ALTO, LLC
                                          SOUTH TEXAS BROADCASTING, INC.
                                              SRN NEWS NETWORK, INC.
                                             VISTA BROADCASTING, INC.,
                                                  as Guarantors,
                                                        and

                                         THE BANK OF NEW YORK, as Trustee
                                                 _________________

                                           SUPPLEMENTAL INDENTURE NO. 2

                                             Dated as of June 12, 2003

                                                        to

                                                     INDENTURE

                                             Dated as of June 25, 2001`





---



`THIS  SUPPLEMENTAL  INDENTURE NO. 2, dated as of June 12, 2003 (this  "Supplemental  Indenture No. 2"), is
hereby  entered  into  by and  among  SALEM  COMMUNICATIONS  HOLDING  CORPORATION,  a  Delaware  corporation,  (the
"Issuer"),  the guarantors  listed on the signature pages hereto  (collectively,  the "Guarantors") and THE BANK OF
NEW YORK, a New York banking corporation, as indenture trustee (the "Trustee").

                                                     RECITALS

         WHEREAS,  the Issuer, the guarantors named therein and the Trustee have previously  executed and delivered
an  Indenture,  dated as of June 25, 2001 (the  "Indenture",  as amended by  Supplemental  Indenture  No. 1 thereto
dated December 16, 2001 and by this  Supplemental  Indenture No. 2, the  "Supplemented  Indenture"),  providing for
the issuance of 9% Senior  Subordinated  Notes due 2011 (the  "Securities")  in the aggregate  principal  amount of
$150,000,000 ;

         WHEREAS,  Section 9.01 of the  Indenture  provides,  among other  things,  that without the consent of any
Holders,  the Issuer and the guarantors  thereto,  when authorized by a Board Resolution,  and the Trustee,  at any
time and from time to time,  may enter into one or more  supplemental  indentures  to  evidence  the  addition of a
guarantor pursuant to the requirements of Section 10.14 of the Indenture;

         WHEREAS,  NI Acquisition  Corporation is a California  corporation and a wholly-owned  subsidiary of Salem
Communications  Holding  Corporation,  a Guarantor,  and Salem Satellite Media, LLC is a Delaware limited liability
company  and a  wholly-owned  subsidiary  of Salem  Media  Corporation,  a  Guarantor;  and it is  desired  that NI
Acquisition  Corporation and Salem Satellite Media,  LLC each become a Guarantor under the Supplemented  Indenture;
and

         WHEREAS,  in  accordance  with Section 9.03 of the  Indenture,  the Issuer has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel,  each stating that this Supplemental  Indenture No. 2 is permitted
by the  Indenture  and that all  conditions  precedent  provided in the  Indenture  relating  to this  Supplemental
Indenture No. 2 have been complied with.

         NOW, THEREFORE, each party hereto agrees as follows for the benefit of the other party:

                                                     ARTICLE I
                                  RELATION TO SUPPLEMENTED INDENTURE; DEFINITIONS

         SECTION 1.01.     This  Supplemental  Indenture  No. 2 constitutes  an integral  part of the  Supplemented
Indenture.

         SECTION 1.02.     For all purposes of this  Supplemental  Indenture No. 2,  capitalized  terms used herein
without definition shall have the meanings specified in the Indenture.

                                                    ARTICLE II
                                             ASSUMPTION OF OBLIGATIONS

         SECTION 2.01.     Each Guarantor named herein hereby expressly  assumes all of the obligations,  covenants
and  duties of a  Guarantor  under the  Guarantee  and the  Supplemented  Indenture,  and,  as hereby  amended  and
supplemented, the Supplemented Indenture shall remain in full force and effect.

                                                    ARTICLE III
                                                   MISCELLANEOUS

         SECTION 3.01.     This  Supplemental  Indenture No. 2 shall be construed in connection  with and as a part
of the Supplemented Indenture.

         SECTION 3.02.     The  headings  herein are for  convenience  only and shall not  affect the  construction
thereof.

         SECTION 3.03.     All covenants  and  agreements in this  Supplemental  Indenture No. 2 by the  Guarantors
shall bind their respective  successors and assigns,  whether so expressed or not. All agreements of the Trustee in
this Supplemental Indenture No. 2 shall bind its successors, co-indenture trustees, if any, and agents.

         SECTION 3.04.     In case any provision in this  Supplemental  Indenture  No. 2 shall be invalid,  illegal
or unenforceable,  the validity,  legality and  enforceability of the remaining  provisions shall not in any way be
affected or impaired thereby.

         SECTION 3.05.     THIS  SUPPLEMENTAL  INDENTURE  NO. 2 SHALL BE CONSTRUED IN  ACCORDANCE  WITH THE LAWS OF
THE STATE OF NEW YORK,  WITHOUT  REFERENCE TO ITS  CONFLICTS OF LAW  PROVISIONS,  AND THE  OBLIGATIONS,  RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

         SECTION 3.06.     This  Supplemental  Indenture No. 2 may be executed in any number of counterparts,  each
of which so executed shall be deemed to be an original,  but all such  counterparts  shall together  constitute but
one and the same instrument.

         SECTION 3.07.     The  Trustee  makes  no  representation  as to  the  validity  or  sufficiency  of  this
Supplemental  Indenture  No. 2. The  recitals  and  statements  herein  are  deemed to be those of the  Issuer  and
Guarantors and not of the Trustee.`





---



`IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture No. 2 to be duly executed
by their respective officers hereunto duly authorized, as of the day and year first above written.

                                                          SALEM COMMUNICATIONS
                                                          HOLDING CORPORATION,
                                                          a Delaware corporation, as Issuer


Attest:  /s/ JONATHAN L. BLOCK                            By:          /s/ DAVID A.R. EVANS
         ---------------------                                         --------------------
         Jonathan L. Block                                Name:        David A.R. Evans
Title:   Secretary                                        Title:       Senior Vice President and
                                                                       Chief Financial Officer`





---



`SALEM COMMUNICATIONS CORPORATION
                                    ATEP RADIO, INC.
                                    BISON MEDIA, INC.
                                    CARON BROADCASTING, INC.
                                    CCM COMMUNICATIONS, INC.
                                    COMMON GROUND BROADCASTING, INC.
                                    GOLDEN GATE BROADCASTING COMPANY, INC.
                                    INSPIRATION MEDIA, INC.
                                    INSPIRATION MEDIA OF PENNSYLVANIA, LP
                                    INSPIRATION MEDIA OF TEXAS, LLC
                                    KINGDOM DIRECT, INC.
                                    NEW ENGLAND CONTINENTAL MEDIA, INC.
                                    NEW INSPIRATION BROADCASTING COMPANY, INC.
                                    NI ACQUISITION CORPORATION
                                    ONEPLACE, LLC
                                    PENNSYLVANIA MEDIA ASSOCIATES, INC.
                                    RADIO 1210, INC.
                                    REACH SATELLITE NETWORK, INC.
                                    SALEM COMMUNICATIONS ACQUISITION
                                            CORPORATION
                                    SALEM MEDIA CORPORATION
                                    SALEM MEDIA OF COLORADO, INC.
                                    SALEM MEDIA OF GEORGIA, INC.
                                    SALEM MEDIA OF HAWAII, INC.
                                    SALEM MEDIA OF ILLINOIS, LLC,
                                    SALEM MEDIA OF KENTUCKY, INC.
                                    SALEM MEDIA OF NEW YORK, LLC
                                    SALEM MEDIA OF OHIO, INC.
                                    SALEM MEDIA OF OREGON, INC.
                                    SALEM MEDIA OF PENNSYLVANIA, INC.
                                    SALEM MEDIA OF TEXAS, INC.
                                    SALEM MEDIA OF VIRGINIA, INC.
                                    SALEM MUSIC NETWORK, INC.
                                    SALEM RADIO NETWORK INCORPORATED
                                    SALEM RADIO OPERATIONS, LLC
                                    SALEM RADIO OPERATIONS-PENNSYLVANIA, INC.
                                    SALEM RADIO PROPERTIES, INC.
                                    SALEM RADIO REPRESENTATIVES, INC.
                                    SALEM SATELLITE MEDIA, LLC
                                    SCA LICENSE CORPORATION
                                    SCA-PALO ALTO, LLC
                                    SOUTH TEXAS BROADCASTING, INC.
                                    SRN NEWS NETWORK, INC.
                                    VISTA BROADCASTING, INC.
                                       as Guarantors


Attest:  /s/ JONATHAN L. BLOCK                            By:          /s/ DAVID A.R. EVANS
         ---------------------                                         --------------------
         Jonathan L. Block                                Name:        David A.R. Evans
Title:   Secretary                                        Title:       Senior Vice President and
                                                                       Chief Financial Officer`





---



`THE BANK OF NEW YORK,
                                                          a New York banking corporation, as Trustee



                                                          By:          /s/ STACEY POINDEXTER
                                                                       ---------------------
                                                          Name:        Stacey Poindexter
                                                          Title:       Assistant Treasurer`





---



`EXHIBIT 21.01
                                 SUBSIDIARIES OF SALEM COMMUNICATIONS CORPORATION


ATEP Radio, Inc.                                                    California
Bison Media, Inc.                                                   Colorado
Caron Broadcasting, Inc.                                            Ohio
CCM Communications, Inc.                                            Tennessee
Common Ground Broadcasting, Inc.                                    Oregon
Golden Gate Broadcasting Company, Inc.                              California
Inspiration Media, Inc.                                             Washington
Inspiration Media of Texas, LLC                                     Texas
Kingdom Direct, Inc.                                                California
New England Continental Media, Inc.                                 Massachusetts
New Inspiration Broadcasting Company, Inc.                          California
NI Acquisition Corp.                                                California
OnePlace, LLC                                                       Delaware
Pennsylvania Media Associates, Inc.                                 Pennsylvania
Radio 1210, Inc.                                                    California
Reach Satellite Network, Inc.                                       Tennessee
Salem Communications Acquisition Corporation                        Delaware
Salem Communications Holding Corporation                            Delaware
Salem Media Corporation                                             New York
Salem Media of Colorado, Inc.                                       Colorado
Salem Media of Georgia, Inc.                                        Delaware
Salem Media of Hawaii, Inc.                                         Delaware
Salem Media of Illinois, LLC                                        Delaware
Salem Media of Kentucky, Inc.                                       Kentucky
Salem Media of New York, LLC                                        Delaware
Salem Media of Ohio, Inc.                                           Ohio
Salem Media of Oregon, Inc.                                         Oregon
Salem Media of Texas, Inc.                                          Texas
Salem Media of Virginia, Inc.                                       Virginia
Salem Music Network, Inc.                                           Texas
Salem Radio Network Incorporated                                    Delaware
Salem Radio Operations, LLC                                         Delaware
Salem Radio Properties, Inc.                                        Delaware
Salem Radio Representatives, Inc.                                   Texas
Salem Satellite Media, LLC                                          Delaware
SCA License Corporation                                             Delaware
SCA-Palo Alto, LLC                                                  Delaware
South Texas Broadcasting, Inc.                                      Texas
SRN News Network, Inc.                                              Texas
Vista Broadcasting, Inc.                                            California`





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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 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 and I have disclosed, based on our most recent evaluation, to the registrants
                      auditors and the audit committee of registrants board of directors (or persons performing the equivalent
                      function):                                                                                                                                        | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                  | 
|   | (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 5, 2003                                                                                                                                                                                                                                                                                                                                                                                                            | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                  | 
|   |     | 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 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 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 and I have disclosed, based on our most recent evaluation, to the registrants
                      auditors and the audit committee of registrants board of directors (or persons performing the equivalent
                      function):                                                                                                                                        | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                  | 
|   | (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 5, 2003                                                                                                                                                                                                                                                                                                                                                                                                            | 
|   |     |                                                                                                                                                                                                                                                                                                                                                                                                                                  | 
|   |     | 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 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 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, 2003 (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 5, 2003 |                                       | 
| | --------------------- | ------------------------------------- | 
| |                       | 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 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 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, 2003 (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 5, 2003 |                                                         | 
| | --------------------- | ------------------------------------------------------- | 
| |                       | By: /s/ DAVID A.R. EVANS                                | 
| |                       |                                                         | 
| |                       | David A.R. Evans                                        | 
| |                       | Senior Vice President and Chief
      Financial Officer | 
| |                       |                                                         | 

A signed original of this written statement required by Section 906
of the Sarbanes-Oxley Act of 2002 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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