The Legend of Heroes: Trails of Cold Steel II picks up right from the cliffhanger ending of the first game, with Rean Schwarz and his classmates from the Thors Military Academy getting scattered all over Erebonia following a heinous betrayal which causes the whole nation to be engulfed in a civil war. (wccftech.com)
If you look at the bad ending of the first game, SM makes perfect sense as a direct sequel. (silenthillheaven.com)
The game suggests that Jacket's interpretation ending is the canonical end of the first game. (gamepur.com)