Set aside 1/4 cup of the coconut to toast. The coconut can be toasted in a 400° oven for 5-10 minutes (stirring frequently), or in a small amount of melted butter in a cast iron skillet over medium heat, stirring constantly until golden brown.
Cream butter and cream cheese with electric mixer. Add milk, vanilla, and powdered sugar in 3-4 additions, alternating wet ingredients with powdered sugar. Beat well.
Stir in remaining 1 3/4 cups coconut.
Frost top and sides of cake with frosting, sprinkling toasted coconut on top of cake.
