Melt over hot (not boiling) water 1/2 cup peanut butter morsels. Stir until smooth. In bowl, measure flour. Set aside. In bowl, combine butter and sugar, beat until creamy. Blend in melted morsels. Beat in eggs and vanilla extract. Alternately blend in flour and milk. Bake until golden brown. Cool 10 minutes before removing from pan. Cool completely before frosting.
FROSTING: Melt over hot (not boiling) water 1 cup peanut butter morsels. Stir until smooth. In large bowl, combine melted morsels, cream cheese, vanilla extract, and salt. Beat well. Beat in powdered sugar alternately with milk until mixture is of spreading consistency.