If you are referring to the Palo Verde Borer Beetle the answer is no. These beetle larvae live inside the roots until they mature and then they emerge as adult beetles. (They are big and ugly). These larvae are called grubs and are a cream color generally with a brown headcap. They curl into a 'c' shape when disturbed. Caterpillars are the larvae of butterflies and would not be eating your tree.

Because your tree has been in the ground nearly a year you should only need to water deeply once every two to three weeks during the coming summer and less often next fall and winter. Applying about 70 - 90 gallons each time is ideal for a tree the size of yours.

If your watering is correct and you haven't applied any herbicides (weed killers like Weed B Gone which contains 2-4-D) in the area, then there is a chance your tree may be planted too deeply. The zone where trunk tissue turns into root tissue (root flare or crown) is designed to remain exposed to air. When plants are installed too deeply soil if often added to make the container area level with the surrounding soil. This reduces the oxygen exchange to the trunk tissues causing suffocation. It is easy to check - just gently remove gravel or soil away from the trunk until you see roots. I have seen trees planted as much as 8" - 12" below grade. If this is the case the roots should remain just below the soil level, but leave about a 6 inch zone around the trunk so air can circulate. Recovery may take a while. Good luck.

Here is a link that might be useful: Palo Verde Borer

Thank you so much, I appreciate your help. I went out and checked the tree root area. It appears to be planted at the correct grade.
I'm very glad to know those things I saw were not Palo Verde borers. I suppose they are some sort of moth, but I can't imagine what they have been using for food except the tree?
I contacted another nursery today and was told that the Palo Verde will sometimes drop last years leaves, but if the growth tips look okay, it's probably nothing to worry about.
I will make sure I keep this tree on a deep, infrequent water schedule until fall/winter, as you have suggested.

I have a huge Museum Palo Verde in my front yard. This tree is spectacular, but this year it hasn't leafed out to it's previous splendor. It appears to be quite sparse and open. It has been watered as it has in the past.??? Also, I have two younger Palo Verdes in my back yard that blossomed weeks apart. If I remember correctly, last year it was at the same time. Just curious about this but concerned about the older tree. Thanks for any input.....
Steve