Impacts of model horizontal resolution on sea-surface temperature (SST) biases are studied using high-resolution (HR) and low-resolution (LR) simulations with the Community Earth System Model (CESM) where the nominal resolutions are 0.1° for ocean and sea-ice and 0.25° for atmosphere and land in HR, and 1° for all component models in LR, respectively. Results show that, except within eastern boundary upwelling systems, SST is warmer in HR than LR. Globally averaged surface ocean heat budget analysis indicates that 1°C warmer global-mean SST in HR is mainly attributable to stronger nonlocal vertical mixing and shortwave heat flux, with the former prevailing over the latter in eddy-active regions. In the tropics, nonlocal vertical mixing is slightly more important than shortwave heat flux for the warmer SST in HR. Further analysis shows that the stronger nonlocal mixing in HR can be attributed to differences in both the surface heat flux and shape function strength used in the parameterization. In addition, the shape function shows a nonlinear relationship with surface heat flux in HR and LR, modulated by the eddy-induced vertical heat transport. The stronger shortwave heat flux in HR, on the other hand, is mainly caused by fewer clouds in the tropics. Finally, investigation of ocean advection reveals that the improved western boundary currents in HR also contribute to the reduction of SST biases in eddy-active regions.