First of all, I don't understand why you create 2 bitmap objects? Why do not something like this:
Bitmap image = (Bitmap)pictureBox1.Image;
Size newSize = new Size(100,100);
Bitmap newImage = new Bitmap((Image)image, newSize);
image.Dispose();
However I don't think that exception is caused by shown code. It's possible to read above on screen :
newSize {Width = 128000 Height = 59500}
Have you calculated how big is that picture?
Size x 4 bytes of format = 3.0464^ 10.
I don't think that you have enough memory to allocate this image.