BLOCK PROGRAMMING NEWS TALK STATIONS SALEM WEB NETWORK BOARD OF DIRECTORS TRANSFER AGENT AND REGISTRAR PROVIDES STABLE AND ACHIEVE 15% INCREASE MONTHLY PAGE VIEWS Stuart W. Epperson Information concerning the transfer or exchange of CONSISTENT GROWTH IN REVENUE DOUBLE TO 95 MILLION Chairman of the Board stock, lost certificates, change of address and other share transfer matters should be directed to Salem Edward G. Atsinger III Communications’ transfer agent at: President and Chief Executive Officer THE BANK OF NEW YORK David Davenport Shareholder Relations Department Distinguished Professor P.O. Box 11002 of Public Policy and Law Church Street Station ������� ������������� Pepperdine University New York, NY 10286 (800) 524-4458 Eric H. Halvorson Executive in Residence Email: [email protected] Pepperdine University http://www.stockbny.com �������������� Roland S. Hinz Publisher / Editor-in-Chief Hi-Torque Publishing SHAREHOLDER CONTACT AND FINANCIAL INFORMATION Judge Paul Pressler A copy of Salem Communications’ Annual Report on ��������� Partner Form 10-K, filed with the Securities and Exchange Woodfill & Pressler, LLP Commission, is available without charge upon written request to: Richard A. Riddle Consultant / Independent Businessman Investor Relations Salem Communications Corporation Dennis M. Weinberg 4880 Santa Rosa Road Retired WellPoint Camarillo, CA 93012 Executive Vice President (805) 987-0400 and Co-Founder ANNUAL MEETING RADIO | INTERNET | PRINT CORPORATE EXECUTIVE OFFICERS Salem Communications’ Annual Meeting of Stuart W. Epperson Shareholders will be held June 6, 2007 Salem Communications is a leading radio broadcaster, Chairman of the Board at 9:30 am at the: Internet content provider and magazine publisher Edward G. Atsinger III Westlake Village Inn serving the growing audience interested in President and Chief Executive Officer 31943 Agoura Road Westlake Village, CA 91361 Christian and family themed content Joe D. Davis Executive Vice President on air, online and in print. and Chief Operating Officer ADDITIONAL INFORMATION David A.R. Evans This Annual Report and other company information Executive Vice President can be viewed electronically on our web site at: Business Development www.salem.cc and Chief Financial Officer Jonathan L. Block Vice President FORWARD-LOOKING STATEMENTS General Counsel and Secretary This report makes “forward-looking statements” within the meaning of federal and state securities Evan D. Masyr laws. Disclosures that use words such as the Vice President company “believes,” “anticipates,” “expects,” Accounting and Finance “intends,” “will,” “may” or “plans” and similar expressions are intended to identify forward-looking statements, as defined under the Private Securities CORPORATE OFFICES Litigation Reform Act of 1995. These forward- Salem Communications Corporation looking statements reflect the company’s current 4880 Santa Rosa Road expectations and are based upon data available to Camarillo, CA 93012 the company at the time the statements are made. (805) 987-0400 Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from expectations. These risks as CORPORATE COUNSEL well as other risks and uncertainties are detailed Gibson, Dunn & Crutcher LLP in the “FORWARD LOOKING STATEMENTS” Jamboree Center and “CERTAIN FACTORS AFFECTING SALEM” 4 Park Plaza on page 1 and pages 11-18, respectively, of our 4880 SANTA ROSA ROAD • CAMARILLO CA 93012 • (805) 987-0400 Irvine, CA 92614-8557 annual report on Form 10-K for the year ended December 31, 2006. Such disclosures are specifically WWW.SALEM.CC incorporated herein by this reference. INDEPENDENT REGISTERED Except as otherwise indicated herein, all references PUBLIC ACCOUNTING FIRM in this report to the number of radio stations Ernst & Young, LLP currently owned and/or operated assume the 725 S. Figueroa Street completion of all pending transactions. Los Angeles, CA 90017 ABOUT SALEM COMMUNICATIONS Salem Communications consists of the following businesses: RADIO STATIONS Owns and operates 98 radio stations, with 61 stations in 23 of the nation’s top 25 markets • Christian Teaching & Talk (45) • Contemporary Christian Music “The FISH”® format (13) • Conservative News Talk (31) • Other formats (9) SALEM RADIO NETWORK® (SRN) • Talk, music and news • Syndicates more than 190 hours of daily original programming • Serving over 2,000 affiliates in 305 markets nationwide • SRNonline.com RADIO BROADCASTING SALEM WEB NETWORK™ Leading provider of online content, services and streaming for Christian ministries and music • Provides audio and video streaming for over 250 ministries • Leading provider of conservative news, talk radio and commentary to the online community • Offers 200 talk radio programs and numerous music options • Crosswalk.com® • ChurchStaffing.com™ • Townhall.com™ • CrossCards.com™ INTERNET • OnePlace.com™ • SermonSearch.com™ • Christianity.com™ • CCMmagazine.com™ • Lightsource.com™ • TheFISH.com™ • ChristianJobs.com™ • Local Salem radio station • CrossDaily.com™ Web sites SALEM PUBLISHING™ A leading publisher of Christian music and ministry magazines • CCM Magazine® • Homecoming The Magazine® • Singing News Magazine™ • FaithTalk Magazine™ PRINT • YouthWorker Journal™ • Preaching Magazine™ • Xulon Press™ SALEM RADIO REPRESENTATIVES (SRR) VISTA RADIO REPRESENTATIVES (VRR) • The country’s only radio rep firm specializing in • Salem’s radio rep firm focused on results-oriented Christian and family-themed media advertising for News Talk and Contemporary Christian • Represents approximately 400 radio stations and SRN Music formats • Seven offices nationwide SALES • 16 offices in 14 cities nationwide NASDAQ: SALM © 2007 Salem Communications. All rights reserved. SH letter_RR 4/16/07 2:34 PM Page 1 The convergence of traditional and new media “has accelerated our transition from a pure play radio Other Financial Highlights broadcaster to an integrated multimedia company. In addition to our efforts to drive operating performance, we also fine-tuned our radio ” station portfolio by divesting non-strategic or underperforming stations in the LETTER TO SHAREHOLDERS Baltimore, Cincinnati, Cleveland, Honolulu, Jacksonville, Richmond, and Sacramento markets, generating sales proceeds of $20.1 million. We are actively marketing several Since Salem was founded in the mid-1970s, our mission has been to superserve other stations and hope to announce additional station sales in the coming months. the large and growing audience interested in content related to faith, family and With the transition of the radio broadcasting industry to a more mature stage of its conservative values. We have never wavered from this focus. Radio continues to represent the most significant way we reach this audience. Indeed, radio broadcast- lifecycle, a number of our peers have taken steps to return capital to shareholders by ing is the foundation of our platform. Nevertheless, as we described in our letter introducing dividends and repurchasing shares. After careful review, we determined it to you last year, terrestrial radio faces challenges arising from the development of was in the interest of the company and our shareholders to grant a special dividend on new media. To address these challenges we have made it a priority to our Class A and Class B common stock of $0.60 per share, or approximately $14.6 million, develop new media businesses that exploit the promotional capability which was paid in July 2006. This was our first dividend as a public company. Additionally, and content resources of our radio assets. As a targeted niche during the year we repurchased 1.5 million shares of common stock for $20.7 million. Radio reaches 94% of broadcaster, the integration of our proven radio platform with all consumers every week, new media is a substantial growth opportunity. 73% every day and its audience In Closing continues to grow in size While new media is changing the communications Although there are challenges presented by new technology, Salem is well positioned for (13% over the last 10 years) landscape – providing competitive threats as well as continued revenue, EBITDA and earnings growth as we further implement the radio and opportunities – radio continues to be an attractive Radio’s business model has one of the business that offers unparalleled access to our new media strategies outlined earlier in this letter. highest cash flow margins of any business target audience: We thank our talented and dedicated employees whose efforts are integral to the achieve- ment of these goals. We also appreciate our block programming, advertising and advertising Radio is attractive to advertisers because the medium is personal, targeted and gets results agency partners, who are an important part of our continued business success. Finally, we thank you our shareholders for your continued confidence and investment in our company. Radio has the ability to adapt and take advantage of new Our Core Business technologies, such as streaming, In 2006, our same station net broadcasting revenue grew by Sincerely, to deliver audio content to the consumer. 2%, exceeding overall industry growth for the sixth consecutive year. Our net broadcasting revenue increased by 5% to $208.4 million, while our total revenue increased 9% to $227.8 million as a result of strong revenue growth in our Internet and publishing businesses. Edward G. Atsinger III Stuart W. Epperson Increased investment in marketing, promotion and local programming talent President