Melt 2 tablespoons of the butter in a large skillet over medium heat. Stir in the coconut and cook, stirring constantly, until coconut is golden brown, about 8 minutes.
In a bowl cream the reamining butter and the cream cheese with an electric mixer on medium speed until smooth and creamy. Add the confectioners' sugar, milk, and vanilla slowly, beating after each addition. Beat until smooth. Stir in the toasted coconut.
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