<PAGE>
 
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                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                                  FORM 10-Q/A
 
    (MARK ONE)
          [X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR
                                   15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
 
                   FOR QUARTERLY PERIOD ENDED JUNE 30, 1998
 
                                      OR
 
          [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR
                 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
               FOR THE TRANSITION PERIOD FROM         TO
 
                       COMMISSION FILE NUMBER 333-41733
 
                       SALEM COMMUNICATIONS CORPORATION
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
             CALIFORNIA                                77-0121400
                                             (I.R.S. EMPLOYER IDENTIFICATION
   (STATE OR OTHER JURISDICTION OF                       NUMBER)
   INCORPORATION OR ORGANIZATION)
 
 
                                                          93012
   4880 SANTA ROSA ROAD, SUITE 300                     (ZIP CODE)
        CAMARILLO, CALIFORNIA
   (ADDRESS OF PRINCIPAL EXECUTIVE
              OFFICES)
 
      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 [_]
 
  As of August 1, 1998 there were 81,672 shares of common stock of Salem
Communications Corporation outstanding.
 
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<PAGE>
 
                       SALEM COMMUNICATIONS CORPORATION


                                     INDEX
                                        
<TABLE>
<CAPTION>
                                                                                                              Page No.
                                                                                                              -------
 
<S>                                                                                                           <C>
COVER PAGE.................................................................................................         1
 
INDEX......................................................................................................         2
 
PART I-FINANCIAL INFORMATION...............................................................................         3
 
       Item 1.   Financial Statements (Unaudited)..........................................................         3
 
                 Condensed Consolidated Balance Sheets as of December 31, 1997 and June 30, 1998...........         3

                 Consolidated Statements of Operations for the three months and six months ended
                   June 30, 1997 and 1998..................................................................         4

                Consolidated Statements of Cash Flows for the six months ended June 30, 1997 and 1998......         5

                Notes to Condensed Consolidated Financial Statements.......................................         6

       Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......         7

SIGNATURES.................................................................................................        12
</TABLE>

                                                                               2
<PAGE>

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)
 
                        SALEM COMMUNICATIONS CORPORATION

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
 
                                                                                          DECEMBER 31        JUNE 30
                                                                                        --------------   ---------------
                                                                                             1997             1998
                                                                                        --------------   ---------------
<S>                                                                                     <C>              <C>
                                                                                                           (UNAUDITED)
                                        ASSETS
-------------------------------------------------------------------------------------
Current assets:
 Cash and cash equivalents...........................................................         $  1,645         $  3,126
 Accounts receivable (less allowance for doubtful accounts of $1,249 in 1997 and
  $1,115 in 1998)....................................................................           12,227           11,883
 Other receivables...................................................................               81               70
 Prepaid expenses....................................................................              640              901
 Prepaid income taxes................................................................               48               30
 Deferred income taxes...............................................................            2,254            2,780
                                                                                              --------         --------
Total current assets.................................................................           16,895           18,790
Property, plant and equipment, net...................................................           36,638           37,528
Intangible assets, net...............................................................          120,083          115,549
Notes receivable from shareholders and accrued interest..............................               94               94
Bond issue costs, net................................................................            4,907            4,923
Other assets.........................................................................            6,196            3,275
                                                                                              --------         --------
Total assets.........................................................................         $184,813         $180,159
                                                                                              ========         ========
 
                       LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------------------
 
Current liabilities:
 Accounts payable....................................................................         $  1,050         $    867
 Accrued expenses....................................................................              476              616
 Accrued compensation and related....................................................            1,381            1,470
 Accrued interest....................................................................            3,804            3,581
 Income taxes........................................................................              341               63
                                                                                              --------         --------
Total current liabilities............................................................            7,052            6,597
Long-term debt.......................................................................          154,500          151,500
Deferred income taxes................................................................           12,122           11,904
Other liabilities....................................................................              457              835
Shareholders' equity:
 Common stock, no par value; authorized 100,000 shares; issued and
  Outstanding 81,672 shares..........................................................            5,832            5,832
 Retained earnings...................................................................            4,850            3,491
                                                                                              --------         --------
Total shareholders' equity...........................................................           10,682            9,323
                                                                                              --------         --------
Total liabilities and shareholders' equity...........................................         $184,813         $180,159
                                                                                              ========         ========
</TABLE>

                            See accompanying notes.

                                                                               3
<PAGE>
 
                        SALEM COMMUNICATIONS CORPORATION

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED JUNE 30     SIX MONTHS ENDED JUNE 30
                                                               ----------------------------   --------------------------
                                                                   1997            1998           1997          1998
                                                               -------------   ------------   ------------   -----------
                                                                (UNAUDITED)    (UNAUDITED)    (UNAUDITED)    (UNAUDITED)
 
<S>                                                            <C>             <C>            <C>            <C>
Gross broadcasting revenue..................................        $18,679        $20,502        $35,887       $39,961
Less agency commissions.....................................          1,737          1,800          3,326         3,557
                                                                    -------        -------        -------       -------
Net broadcasting revenue....................................         16,942         18,702         32,561        36,404
 
Operating expenses:
  Station operating expenses................................          9,748         10,049         19,257        19,979
  Corporate expenses........................................          1,505          1,925          2,821         3,428
  Tax reimbursements to S corporation shareholders..........            800                         1,486
  Depreciation and amortization.............................          3,194          3,329          6,158         6,666
                                                                    -------        -------        -------       -------
  Operating expenses........................................         15,247         15,303         29,722        30,073
                                                                    -------        -------        -------       -------
Net operating income........................................          1,695          3,399          2,839         6,331
 
Other income (expense):
  Interest income...........................................             33             87            105           190
  Loss on disposal of assets................................             (3)          (613)          (192)         (635)
  Interest expense..........................................         (3,077)        (3,819)        (5,435)       (7,591)
  Other expense.............................................            (27)          (100)          (203)         (205)
                                                                    -------        -------        -------       -------
Loss before income taxes....................................         (1,379)        (1,046)        (2,886)       (1,910)
Benefit for income taxes....................................         (1,184)          (261)        (1,468)         (551)
                                                                    -------        -------        -------       -------
 
Net loss....................................................        $  (195)       $  (785)       $(1,418)      $(1,359)
                                                                    =======        =======        =======       =======

 
Pro forma information (unaudited):
Loss before income taxes as reported above..................        $(1,379)       $(1,046)       $(2,886)      $(1,910)
Add back tax reimbursements to S Corporation shareholders...            800                         1,486
                                                                    -------        -------        -------       -------
Pro forma loss before income taxes..........................           (579)        (1,046)        (1,400)       (1,910)
Pro forma benefit for income taxes..........................           (231)          (261)          (558)         (551)
                                                                    -------        -------        -------       -------
Pro forma net loss..........................................        $  (348)       $  (785)       $  (842)      $(1,359)
                                                                    =======        =======        =======       =======
</TABLE>

                            See accompanying notes.

                                                                               4
<PAGE>
 
                        SALEM COMMUNICATIONS CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
 
                                                                                                        SIX MONTHS ENDED
                                                                                                    -------------------------
                                                                                                             JUNE 30
                                                                                                    -------------------------
                                                                                                       1997          1998
                                                                                                    -----------   -----------
                                                                                                    (UNAUDITED)   (UNAUDITED)
<S>                                                                                                 <C>           <C>
Operating activities
Net loss.........................................................................................     $ (1,418)      $(1,359)
Adjustments to reconcile net loss to net cash provided by operating activities:
  Depreciation and amortization..................................................................        6,158         6,666
  Amortization of bank loan fees.................................................................          108            21
  Amortization of bond issue costs...............................................................           --           265
  Deferred income taxes..........................................................................       (1,642)         (744)
  Loss on sale of assets.........................................................................          192           635
  Changes in operating assets and liabilities:
    Accounts receivable..........................................................................         (169)          355
    Prepaid expenses and other current assets....................................................         (602)         (243)
    Accounts payable and accrued expenses........................................................        2,172          (177)
    Other liabilities............................................................................          (17)          378
    Income taxes.................................................................................           78          (278)
                                                                                                      --------       -------
Net cash provided by operating activities........................................................        4,860         5,519
 
INVESTING ACTIVITIES
  Capital expenditures...........................................................................       (4,796)       (3,696)
  Purchases of radio stations....................................................................      (16,493)           --
  Deposits on radio station acquisitions.........................................................       (1,575)       (1,635)
  Proceeds from disposal of property, plant and equipment and intangible assets..................          132            46
  Other assets...................................................................................          131         4,528
                                                                                                      --------       -------
Net cash used in investing activities............................................................      (22,601)         (757)
 
FINANCING ACTIVITIES
  Proceeds from issuance of long-term debt and notes payable to shareholders.....................       52,160         8,500
  Payments of long-term debt and notes payable to shareholders...................................      (31,500)       (9,500)
  Payments of bank loan fees.....................................................................         (735)           --
  Payments of bond issue costs...................................................................           --          (281)
  Repayments (additions) of shareholder notes and
   Repayment of accrued interest receivable--net.................................................       (1,872)       (2,000)
  Distributions to shareholders..................................................................         (782)
                                                                                                      --------       -------
  Net cash provided by financing activities......................................................       17,271        (3,281)
                                                                                                      --------       -------
  Net (decrease) increase in cash and cash equivalents...........................................         (470)        1,481
  Cash and cash equivalents at beginning of year.................................................        1,962         1,645
                                                                                                      --------       -------
Cash and cash equivalents at end of period.......................................................     $  1,492       $ 3,126
                                                                                                      ========       =======
 
Supplemental disclosures of cash flow information:
  Cash paid during the period for:
    Interest.....................................................................................     $  3,637       $ 7,476
    Income taxes.................................................................................           95           487
</TABLE>

                            See accompanying notes.

                                                                               5
<PAGE>
 
                        SALEM COMMUNICATIONS CORPORATION

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

NOTE 1.   BASIS OF PRESENTATION

  Information with respect to the three and six months ended June 30, 1998 and
1997 is unaudited. The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
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 generally accepted accounting principles
for complete financial statements. In the opinion of management, the unaudited
interim financial statements, together with the disclosures set forth in Item 2
of this report, contain all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the financial position, results
of operations and cash flows of Salem Communications Corporation and
Subsidiaries (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 the Salem
Communications Corporation and Subsidiaries' Special Financial Report filed
pursuant to Rule 15d-2 promulgated under the Securities Exchange Act of 1934, as
amended, under cover of Form 10-K for the year ended December 31, 1997.


NOTE 2.   SUBSEQUENT EVENTS
 
  In April 1998, the Company agreed to purchase the assets of radio station
KIEV-AM, Glendale, California, for $33.4 million, $30.4 million of which must be
paid to the seller at closing. The remaining $3 million is for real estate and
is not payable until 18 months after the date of closing, which the Company
anticipates will occur in August 1998.

  In May 1998, the Company agreed to purchase the assets of radio stations KTEK-
AM, Houston, Texas and KYCR-AM, Minneapolis, Minnesota, for $2.7 million. The
Company anticipates that these purchases will close in October 1998. The Company
entered into Local Marketing Agreements for KTEK-AM and KYCR-AM in May 1998.

  In July 1998, the Company agreed to sell the assets of radio station KAVC-FM,
Lancaster, California, for $1.6 million. The Company anticipates that this sale
will close in September 1998. The Company entered into a Local Marketing
Agreement for KAVC-FM in August 1998.

  In July 1998, the Company agreed to purchase the assets of radio station KKMO-
AM, Tacoma, Washington, for $500,000. The Company anticipates that the purchase
will close in August 1998. The Company entered into a Local Marketing Agreement
for KKMO-AM in June 1998.

  In August 1998, the Company sold the assets of radio station KTSL-FM, Spokane,
Washington, for $1.3 million. The Company entered into a Local Marketing
Agreement for KTSL-FM in June 1998.

  The Federal Communications Commission must approve the assignments of the
licenses for these radio stations before the purchases and sales can be
consummated. The purchases will be financed primarily by additional borrowings
under the Company's Credit Agreement, offset by the proceeds from the sales.

                                                                               6
<PAGE>
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

 
  The following discussion of the financial condition and results of
operations of the Salem Communications Corporation, a California corporation
(the "Company"), should be read in conjunction with the consolidated financial
statements and related notes thereto.
 
  The Company is a radio broadcast company that focuses on serving the
religious/conservative listening audience. The Company's two primary
businesses include the ownership and operation of religious format radio
stations and the development and expansion of a national radio network (the
"Network") offering talk programming, news and music to affiliated stations.
At June 30, 1998, the Company owned and/or operated 45 stations concentrated
in 28 geographically diverse markets across the United States.
 
  The Company was incorporated in California in 1986 in connection with a
combination of most of the radio station holdings of the principal
shareholders of the Company, Edward G. Atsinger III and Stuart W. Epperson
(the "Principal Shareholders"). Each of the Principal Shareholders owned 50%
of the Company's outstanding common stock. New Inspiration Broadcasting
Company, Inc. ("New Inspiration"), the licensee of KKLA-FM, Los Angeles, and
Golden Gate Broadcasting Company, Inc. ("Golden Gate"), the licensee of KFAX-
AM, San Francisco, were owned by the Principal Shareholders and Mr. Epperson's
wife, Nancy A. Epperson. New Inspiration and Golden Gate were both "S
corporations," as that term in defined in the Internal Revenue Code of 1986,
as amended. In August 1997, the Company, New Inspiration and Golden Gate
effected a reorganization (the "Reorganization") pursuant to which New
Inspiration and Golden Gate became wholly owned subsidiaries of the Company.
The S corporation status of New Inspiration and Golden Gate was terminated in
the Reorganization. As a result of the Reorganization the outstanding common
stock of the Company is owned by Mr. Atsinger (50%), Mr. Epperson (36.8%) and
Mrs. Epperson (13.2%).
 
  In September 1997, the Company issued and privately placed $150 million
principal amount of 9 1/2% Senior Subordinated Notes due 2007 (the "Notes").
In March 1998, the Company consummated an offer for all outstanding Notes (the
"Old Notes"), which were subject to certain restrictions on transfer, in
exchange for Notes registered pursuant to the Securities Act of 1933, as
amended (the "New Notes") and thus not subject to such transfer restrictions
(the "Exchange Offer"). Pursuant to the Exchange Offer, the $150 million in
principal amount of New Notes were issued and like amount of the Old Notes
were canceled. Reference in this report to the Notes includes both the New
Notes and the Old Notes.
 
  The performance of a radio group, such as the Company, is customarily
measured by the ability of its stations to generate Broadcast Cash Flow and
EBITDA. Broadcast Cash Flow is defined as net broadcasting revenue less
station operating expenses (excluding depreciation and amortization). EBITDA
is defined as Broadcast Cash Flow less corporate expenses. Although Broadcast
Cash Flow and EBITDA are not measures of performance calculated in accordance
with generally accepted accounting principles, and should be viewed as a
supplement to and not a substitute for the Company's results of operations
presented on the basis of generally accepted accounting principles, the
Company believes that Broadcast Cash Flow and EBITDA are useful because they
are generally recognized by the radio broadcasting industry as a measure of
performance and are used by analysts who report on the performance of
broadcast companies.
 
  The principal sources of the Company's revenue are (i) the sale of block
program time, both to national and local program producers, (ii) the sale of
broadcast time on its radio stations for advertising, both to national and
local advertisers, and (iii) the sale of broadcast time for advertising on the
Network.
 
  The Company's revenue is affected primarily by the program and advertising
rates its radio stations and the Network charge. Correspondingly, the rates
for block program time are based upon the 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
on-air inventory, which in turn is based on the stations' and the Network's
ability to produce results for its advertisers. Each of the Company's stations
and the Network have a
 
                                                                               7
<PAGE>
 
general pre-determined level of on-air inventory that it makes available for
block programs and advertising, which may vary at different times of the day
and tends to remain stable over time. Much of the Company's selling activity
is based on demand for its radio stations' and the Network's on-air inventory.
 
  The Company's revenue and cash flow are also affected by the transition
period experienced by stations acquired by the Company that previously
operated with formats other than religious formats. During the transition
period when the Company develops its program customer and listener base, such
stations typically do not generate significant cash flow from operations. The
Company's quarterly revenue varies throughout the year, as is typical in the
radio broadcasting industry. Quarterly revenue from the sale of block program
time does not tend to vary, however, since program rates are generally set
annually.
 
  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
most of its on-air inventory for cash advertising, the Company generally
enters into trade agreements only if the goods or services bartered to the
Company will be used in the Company's business. The Company has minimized its
use of trade agreements and has generally sold over 90% of its advertising
time for cash. In addition, it is the Company's general policy not to preempt
advertising spots paid for in cash with advertising spots paid for in trade.
 
  The primary operating expenses incurred in the ownership and operation of
the Company's radio stations include employee salaries and commissions, and
facility expenses (e.g., rent and utilities). The Company also incurs and will
continue to incur significant depreciation, amortization and interest expense
as a result of completed and future acquisitions of stations, and due to
existing borrowings and future borrowings. The Company's consolidated
financial statements tend not to be directly comparable from period to period
due to the Company's acquisition activity.
 
  The consolidated statements of operations of the Company for periods prior
to August 13, 1997 include an operating expense called "tax reimbursements to
S corporation shareholders." These amounts represent the income tax liability
of the shareholders created by the income of New Inspiration and Golden Gate,
which prior to the recent Reorganization were each S corporations. Management
considers the nature of this operating expense to be essentially equivalent to
an income tax provision and has excluded this expense from the calculation of
Broadcast Cash Flow and EBITDA for periods prior to August 13, 1997. Commencing
August 13, 1997, pretax income of New Inspiration and Golden Gate is included in
the Company's consolidated income tax return and in the Company's computation of
the income tax provision included in its consolidated statement of operations.
 
RESULTS OF OPERATIONS

  Net Revenue.   Net revenue increased approximately $1.8 million or 10.7% to
$18.7 million for the quarter ended June 30, 1998 from $16.9 million for the
same quarter of the prior year. Net revenue increased approximately $3.8 million
or 11.7% to $36.4 million for the six month period ended June 30, 1998 from
$32.6 million for the same period of the prior year. The inclusion of revenue
from the acquisitions of radio stations and revenue generated from local
marketing agreements ("LMAs") entered into during 1997 provided approximately
$191,000 of the increase for the quarter ended June 30, 1998 over the same
quarter of the prior year, and approximately $338,000 of the increase for the
six month period ended June 30, 1998 over the same period of the prior year. For
stations and networks owned and operated over the comparable period in 1997 and
1998, net revenue improved approximately $1.6 million or 9.9% to $17.8 million
for the quarter ended June 30, 1998 from $16.2 million for the same quarter of
the prior year, and approximately $3.5 million or 11.2% to $34.8 million for the
six month period ended June 30, 1998 from $31.3 million for the same period of
the prior year due primarily to increases in on-air inventory and improved
selling efforts and to a lesser extent to program rate increases.
 
  Station Operating Expenses.   Station operating expenses increased
approximately $301,000 or 3.1% to $10.0 million for the quarter ended June 30,
1998 from $9.7 million for the same quarter of the prior year. Station operating
expenses increased approximately $722,000 or 3.8% to $20.0 million for the six
month period ended June 30, 1998 from $19.3 million for the same period of the
prior year. The inclusion of expenses from the acquisitions of radio stations
and expenses incurred for LMAs entered into during 1997 provided approximately
$264,000 of the increase for the quarter ended June 30, 1998 over the same
quarter of the prior year. None of the increase for the six month period ended
June 30, 1998 over the same period of the prior year was due to the inclusion of
expenses from the acquisitions of radio stations and networks and expenses
incurred for LMAs entered into during 1997. The 3.8% increase from the six month
period ended June 30, 1997 to the six month period ended June 30, 1998 was
primarily due to expenses incurred to produce the increased revenue in the 1998
period, as described above.


                                                                               8
<PAGE>
 

  Broadcast Cash Flow.   Broadcast Cash Flow increased approximately $1.5
million or 20.8% to $8.7 million for the quarter ended June 30, 1998 from $7.2
million for the same quarter of the prior year. Broadcast Cash Flow increased
approximately $3.1 million or 23.3% to $16.4 million for the six month period
ended June 30, 1998 from $13.3 million for the same period of the prior year. As
a percentage of net revenue, Broadcast Cash Flow increased to 46.3% for the
quarter ended June 30, 1998 from 42.5% for the same quarter of the prior year.
As a percentage of net revenue, Broadcast Cash Flow increased to 45.1% for the
six month period ended June 30, 1998 from 40.9% for the same period of the prior
year. The increases are primarily attributable to the improved performance of
stations acquired in 1996 and 1997 that previously operated with formats other
than religious formats. These acquired and reformatted stations typically
produce lower margins during the early phase of the transition period from a
non-religious format to a religious format. Broadcast Cash Flow margins improve
as the Company implements scheduled program rate increases and increases spot
advertising revenue on the stations.

  Corporate Expenses.   Corporate expenses increased approximately $420,000 or
27.9% to $1.9 million for the quarter ended June 30, 1998 from $1.5 million for
the same quarter of the prior year. Corporate expenses increased approximately
$607,000 or 21.5% to $3.4 million for the six month period ended June 30, 1998
from $2.8 million for the same period of the prior year. The increases are
primarily attributable to additional personnel and overhead costs associated
with station and network acquisitions in 1996 and 1997.

  EBITDA.   EBITDA increased approximately $1.0 million or 17.5% to $6.7 million
for the quarter ended June 30, 1998 from $5.7 million for the same quarter of
the prior year. EBITDA increased approximately $2.5 million or 23.8% to $13.0
million for the six month period ended June 30, 1998 from $10.5 million for the
same period of the prior year. As a percentage of net revenue, EBITDA increased
to 36.0% for the quarter ended June 30, 1998 from 33.6% for the same quarter of
the prior year. As a percentage of net revenue, EBITDA increased to 35.7% for
the six month period ended June 30, 1998 from 32.2% for the same period of the
prior year.

  Tax Reimbursements to S Corporation Shareholders.   There were no tax
reimbursements to S corporation shareholders for the six month period ended June
30, 1998 because of the Reorganization which took place in August 1997. New
Inspiration and Golden Gate became wholly-owned subsidiaries of the Company in
August 1997 pursuant to the Reorganization. The S corporation status of New
Inspiration and Golden Gate was terminated in the Reorganization.

  Depreciation and Amortization. Depreciation and amortization expense increased
approximately $100,000 or 3.1% to $3.3 million for the quarter ended June 30,
1998 from $3.2 million for the same quarter of the prior year, primarily due to
radio station and network acquisitions consummated during 1997. Depreciation and
amortization expense increased approximately $508,000 or 8.3% to $6.7 million
for the six month period ended June 30, 1998 from $6.2 million for the same
period of the prior year, primarily due to radio station and network
acquisitions consummated during 1997.

  Other Income (Expense).   Interest income was essentially unchanged for the
second quarter of 1998 and 1997, and for the six month periods ended June 30,
1998 and 1997. Loss on disposal of assets increased approximately $610,000 to
$613,000 for the quarter ended June 30, 1998 compared to the same quarter of the
prior year, and approximately $443,000 to $635,000 for the six month period
ended June 30, 1998 compared to the same period of the prior year, primarily due
to the write off of abandoned assets at one of the Company's radio stations in
the second quarter of 1998. Interest expense increased approximately $742,000 or
24.1% to $3.8 million for the quarter ended June 30, 1998 from $3.1 million for
the same quarter of the prior year. Interest expense increased approximately
$2.2 million or 40.7% to $7.6 million for the six month period ended June 30,
1998 from $5.4 million for the same period of the prior year. The increases in
interest expense are primarily due to interest expense associated with
additional borrowings to fund acquisitions consummated during 1997. Other
expense was essentially unchanged for the second quarter of 1998 and 1997, and
for the six month periods ended June 30, 1998 and 1997.

  Benefit for Income Taxes. Benefit for income taxes as a percentage of loss
before income taxes (i.e., effective tax rate) was (24.9)% for the quarter ended
June 30, 1998 and (65.4)% for the same quarter of the prior year, and (28.8)%
for the six month period ended June 30, 1998 and (50.9)% for the same period of
the prior year. For the quarter and six month period ended June 30, 1997, the
effective tax rate may differ from the federal statutory income tax rate of
34.0% because of the effect of state income taxes and the exclusion of federal
income taxes relating to the S corporations. The increases in the effective tax
rate are primarily due to an increase in state income taxes and the inclusion of
income from New Inspiration and Golden Gate, which were S corporations prior to
the Reorganization in August 1997.



                                                                               9
<PAGE>
 

  Net Loss.   The Company recognized a net loss of approximately ($785,000) for
the quarter ended June 30, 1998, compared to a net loss of approximately
($195,000) for the same quarter of the prior year. The Company recognized a net
loss of approximately ($1,359,000) for the six month period ended June 30, 1998,
compared to a net loss of approximately ($1,418,000) for the same period of the
prior year.

LIQUIDITY AND CAPITAL RESOURCES

  The increase in cash and cash equivalents from December 31, 1997 to June 30,
1998 is primarily due to an increase in EBITDA. The decrease in accounts
receivable from December 31, 1997 to June 30, 1998 is due to increased
collections during the first quarter of 1998.

  In the past, the Company principally financed acquisitions of radio stations
through borrowings, including borrowings under credit agreements with banks,
and, to a lesser extent, from cash flow from operations and selected asset
dispositions. In September 1997, the Company used the net proceeds from the sale
of the Notes to repay substantially all of its outstanding indebtedness under a
line of credit agreement, at which time such facility was canceled and the
Company entered into the current Credit Agreement.

  The Company anticipates funding future acquisitions from operating cash flow
and borrowings, including borrowings under the Credit Agreement. At June 30,
1998, $1.5 million was outstanding under the Company's Credit Agreement. The
maximum amount that the Company may borrow under the Credit Agreement is limited
by the Company's debt to cash flow ratio, adjusted for recent radio station
acquisitions as defined in the Credit Agreement (the "Adjusted Debt to Cash
Flow Ratio"). At June 30, 1998, the maximum Adjusted Debt to Cash Flow Ratio
allowed under the Credit Agreement was 6.25 to 1. The Company's ability to
borrow for the purpose of acquiring a radio station is further limited by the
Credit Agreement in that the Company may not borrow for an acquisition if the
Adjusted Debt to Cash Flow Ratio is greater than 6.0 to 1. At June 30, 1998, the
Adjusted Debt to Cash Flow Ratio was 5.22 to 1, resulting in total borrowing
availability of approximately $24.7 million, all of which can currently be used
for radio station acquisitions. In addition to debt service requirements under
the Credit Agreement, the Company is required to pay approximately $14.3 million
per annum in interest on the Notes.

  The Credit Agreement contains certain additional restrictive covenants
customary for credit facilities of the size, type and purpose contemplated
which, among other things, and with certain exceptions, limits the Company's
ability to enter into affiliate transactions, pay dividends, consolidate, merge
or effect certain asset sales, make certain investments or loans and change the
nature of its business. The Credit Agreement also requires the satisfaction by
the Company of certain financial covenants, which will require the maintenance
of specified financial ratios and compliance with certain financial tests,
including ratios for maximum leverage as described above (not greater than 6.25
to 1 at June 30, 1998), minimum interest coverage (not less than 1.50 to 1 at
June 30, 1998), minimum debt service coverage (a static ratio of not less than
1.10 to 1) and minimum fixed charge coverage (a static ratio of not less than
1.10 to 1).

  In April 1998, the Company agreed to purchase the assets of radio station 
KIEV-AM, Glendale, California, for $33.4 million, $30.4 million of which must be
paid to the seller at closing, which the Company anticipates will occur in late
August 1998. The remaining $3 million is for real estate and is not payable
until 18 months after the date of closing. In May 1998, the Company agreed to
purchase the assets of radio stations KTEK-AM, Houston, Texas and KYCR-AM,
Minneapolis, Minnesota, for $2.7 million. The Company anticipates that these
purchases will close in October 1998. The Company entered into LMAs for KTEK-AM
and KYCR-AM in May 1998. In May 1998, the Company agreed to sell the assets of
radio station KAVC-FM, Lancaster, California, for $1.6 million. The Company
anticipates that this sale will close in September 1998. The Company entered
into an LMA for KAVC-FM in August 1998. In July 1998, the Company agreed to
purchase the assets of radio station KKMO-AM, Tacoma, Washington, for $500,000.
The Company anticipates that the purchase will close in August 1998. The Company
entered into an LMA for KKMO-AM in June 1998. In August 1998, the Company sold
the assets of radio station KTSL-FM, Spokane, Washington, for $1.3 million. The
Company entered into an LMA for KTSL-FM in June 1998.


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<PAGE>
 


  The Company intends to borrow approximately $29 million under the Credit
Agreement to finance these acquisitions. To permit such borrowings, certain
provisions of the Credit Agreement will have to be waived and others amended.
Specifically, the banks which are party to the Credit Agreement will have to
waive the covenant restricting borrowings for acquisitions when the Adjusted
Debt to Cash Flow Ratio exceeds 6.0 to 1. At June 30, 1998, assuming $29 million
had been borrowed at such date to finance the acquisitions of KIEV-AM, KTEK-AM,
KYCR-AM and KKMO-AM, and the proceeds of the sales of KAVC-FM and KTSL-FM have
been applied to reduce borrowings under the Credit Agreement, the Adjusted Debt
to Cash Flow Ratio would have been 6.43 to 1. In addition, the maximum leverage
permitted (no greater than 6.25 to 1 from June 29, 1998 through December 30,
1998, and no greater than 5.75 to 1 from December 31, 1998 through December 30,
1999) will have to be increased slightly. The Company anticipates that such
waiver and amendment will be permitted by the banks. At June 30, 1998, making
the same assumptions as above the Company anticipates that amendments to the
Credit Agreement would have provided the Company with a total borrowing
availability of approximately $9.4 million; none of this amount will be
available for radio station acquisitions. Management believes that cash flow
from operations and borrowings under the Credit Agreement (as the Company
anticipates the Credit Agreement will be amended) should be sufficient to permit
the Company to meet its financial obligations and to fund its operations for at
least the next twelve months.
 
YEAR 2000 COMPLIANCE
 
  The Company does not expect a significant disruption in operations or any
significant expenditures as a result of computer software issues related to
the year 2000. There can be no assurance, however, that material customers and
vendors of the Company, financial services firms used by the Company, or the
payment system in general will not experience a disruption in operations as a
result of computer software issues related to the year 2000. If any such
disruption were to occur, there can be no assurance it would not have a
material adverse effect on the Company's business, financial condition or
operations.
 
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
 
  This report includes "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 which involve risks and
uncertainties. All statements, other than statements of historical facts,
included in this report that address activities, events or developments that
the Company expects or anticipates will or may occur in the future, including
such things as future capital expenditures (including the amount and nature
thereof), business strategy and measures to implement strategy, competitive
strengths, goals, expansion and growth of the Company's business and
operations, plans, references to future success and other such matters are
forward-looking statements. When used in this report, the words "anticipates,"
"believes," "expects," "intends," "forecasts," "plans," "future," "strategy,"
or words of similar import are intended to identify forward-looking
statements. The forward-looking statements are based on certain assumptions
and analyses made by the Company in light of its experience and its perception
of historical trends, current conditions and expected future developments as
well as other factors it believes are appropriate in the circumstances.
However, whether actual results and developments will conform to the Company's
expectations and predictions is subject to a number of risks: general
economic, market or business conditions; the opportunities (or lack thereof)
that may be presented to and pursued by the Company; competitive actions by
other companies; changes in laws or regulations; and other factors, many of
which are beyond the control of the Company. Consequently, all of the forward-
looking statements made in this report are qualified by these cautionary
statements and there can be no assurance that the actual results or
developments anticipated by the Company will be realized or, even if
substantially realized, that they will have the expected consequences to or
effects on the Company or its business operations. Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only
as of the date hereof. The Company undertakes no obligation to publish revised
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events. Readers are urged
to carefully review and consider the various disclosures made by the Company
to advise interested parties of certain risks and other factors that may
affect the Company's business and operating results, including the disclosures
made under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in this report.
 
                                                                              11
<PAGE>
 
                                  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.
 
Date: October 9, 1998                     Salem Communications Corporation
 
                                                /s/ Edward G. Atsinger III
                                          By: _________________________________
                                            Edward G. Atsinger III
                                            President and Chief Executive
                                            Officer
 
                                                     /s/ Dirk Gastaldo
Date: October 9, 1998                     ______________________________________
                                            Dirk Gastaldo
                                            Vice President and Chief Financial
                                            Officer (Principal Financial 
                                            Officer)
 
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