GDI+ Error converting 24bpp JPG to 8bpp Indexed format (PNG or GIF)

Question

I need a generic function to convert images to a target format. (Format8bppIndexed in this case) The goal is to be able to handle a reasonable range of regular .NET supported images. We have many clients with hundreds of Terabytes of images of varying types and I plan to loop through them all with this code.

Here is an example Image I am trying to convert which throws the errors:

I realize this code has multiple inner try-catches, however I wanted to illustrate the problem.

Within each try below I have comments showing the exception and error I receive.

public static Bitmap ConvertToFormat(this Bitmap Source, PixelFormat TargetFormat)
{
    try
    {
        //This throws OutOfMemoryException: "Out of memory."
        return Source.Clone(new Rectangle(0, 0, Source.Width, Source.Height), TargetFormat);
    }
    catch (OutOfMemoryException)
    {
        try
        {
            MemoryStream ResultStream = new MemoryStream();

            // This throws ExternalException: "A generic error occurred in GDI+"
            Source.Save(ResultStream, ImageFormat.Gif);

            ResultStream.Position = 0;
            return new Bitmap(ResultStream);
        }
        catch (ExternalException)
        {
            // this is just an attempt to break the process down further to try and find the cause:

            ImageCodecInfo myImageCodecInfo = GetCodecInfo(ImageFormat.Gif);
            EncoderParameters myEncoderParameters = new EncoderParameters(2);
            myEncoderParameters.Param[0] = new EncoderParameter(Encoder.Compression, (long)EncoderValue.CompressionLZW); ;
            myEncoderParameters.Param[1] = new EncoderParameter(Encoder.Quality, 0L);

            MemoryStream ResultStream = new MemoryStream();

            // This throws ExternalException: "A generic error occurred in GDI+"
            Source.Save(ResultStream, myImageCodecInfo, myEncoderParameters);

            ResultStream.Position = 0;
            return new Bitmap(ResultStream);
        }
    }
}

private static ImageCodecInfo GetCodecInfo(ImageFormat TargetFormat)
{
    return ImageCodecInfo.GetImageEncoders().ToList().Find(
        delegate (ImageCodecInfo codec) 
            { return codec.FormatID == TargetFormat.Guid; });
}

I know the source image is good as I can read the pixels just fine using LockBits(). I am considering using a loop to create a new image pixel by pixel using this, but I would prefer to use the more direct clone option as it automatically handles color palette creation, color matching and dithering.

UPDATE:
I found the code causing the issue, but I am unsure why. I did not want the file to be locked, so I was using the code below to load the image into memory and then unlock the file. Apparently this was causing issues, but only when calling the Clone() method. When I use that same image with LockBits() it allows me to access every pixel via the memory pointer just fine and also it displays just fine in a PictureBox. Does anyone know why this method is causing a .Clone() error and also how can I load an Image file into memory and then immediatly release the file?

using (Stream s = File.OpenRead(SourceFileName))
{
    return (Bitmap)Bitmap.FromStream(s);
}