You have to look to your account agreement to determine when and how to pay the interest (annually or at maturity; add to principal or pay out). Reg DD Section 230.7 governs the compounding and crediting of interest, but specifically "does not require institutions to compound or credit interest at any particular frequency." If the interest is not credited until maturity, that is when you would issue the 1099. If the interest is credited annually (no matter which method you use for crediting) you would issue an annual 1099 for the amount credited that year.
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In the end, it's all just a bunch of paper....